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One-off powers Adani profit

LiveMint logoLiveMint 15-05-2014 Ravi Krishnan

It’s no surprise that Adani Power Ltd’s income and net profit beat Street estimates. After the Central Electricity Regulatory Commission’s (CERC’s) orders on compensatory tariff for its Mundra power plant, Adani has booked a one-off income of `1,843.12 crore in the March quarter. That let it more than triple revenue to `5,996.5 crore.

Adjusting for this one-time gain, Adani’s revenue would have been `4,153.37 crore, little changed from the December quarter. The year-on-year numbers aren’t quite comparable since the company has added capacity during the just-ended fiscal year. Net profit too has been inflated not only by the one-time gain, which passes straight through to profits, but also by a tax write-back of `1,400 crore, which it says is owing to a reassessment of deferred tax liability. So, while it posted a net profit figure after nine straight quarters of losses that is not really indicative of a bounceback.

Still, there were some positives in its operations. The firm generated 12.7 billion units of electricity in the March quarter, slightly better than in the three months ended December. Plant load factors, or capacity utilization, at 74% was better than the industry average. However, realizations at `3.21 per kilowatt hour fell slightly compared with `3.29 in the last quarter.

The outlook remains murky. For one, while the rise in plant load factor could perhaps have been owing to an improvement in domestic coal supplies, more clarity will assuage investors’ concerns on whether the promised amount of fuel supply from Coal India Ltd will materialize.

Secondly, any delay in receiving the compensatory tariff-related revenue, which have already been booked, could impact Adani Power’s cash flows. The Haryana and Gujarat utilities which have to cough up the compensatory tariff have filed an appeal at higher courts and appellate authorities and resolution could well take some time.

The firm’s debt-to-equity ratio is still a high 6.07 times. Of course, the stock price doesn’t reflect all these problems. The Adani Power stock has climbed 67% in the past three months on hopes that a new and stable government will help power sector problems. But investors would do well to note that while any government might be able to speed up fuel supplies, tariff issues are outside its ambit.

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