The Supreme Court allowing the Central Electricity Regulatory Commission (CERC) to revise power tariffs for imported-coal based power plants in Mundra is seen to improve the outlook on Tata Power and Adani Power.

By: FE Bureau  November 14, 2018 2:40 AM

Edelweiss Securities said that the tariff hike for Adani Power “could boost earnings before interest, taxes, depreciation and amortisation (Ebitda) by about Rs 1,600 crore at 70% PLF level”.

The Supreme Court allowing the Central Electricity Regulatory Commission (CERC) to revise power tariffs for imported-coal based power plants in Mundra is seen to improve the outlook on Tata Power and Adani Power.

The two companies, grappling with under-recoveries from these power plants, can now see light at the end of the tunnel as the electricity regulator would now take cognisance of the recommendations of the high-level committee, constituted to assess if the plants could be revived through appropriate financial and contractual re-structuring.

Coastal Gujarat Power (CGPL), the Tata Power arm that runs the 4,150 MW Mundra ultra mega power plant, has fuel under-recovery of Rs 0.83/unit, while under-recovery in Adani’s 4,620 MW Mundra plant averaged Rs 1/unit in Q2FY19. Till March 31, 2018, Adani Power and Tata Power had suffered financial losses to the tune of Rs 9,748 crore and Rs 8,176 crore, respectively, from under-recoveries of fuel prices.

Analysts have noted that if CERC approves the high-level committee recommendations, CGPL tariffs would increase by Rs 0.30-0.40/unit and Adani’s tariff would rise by Rs 0.80/unit.

Edelweiss Securities said that the tariff hike for Adani Power “could boost earnings before interest, taxes, depreciation and amortisation (Ebitda) by about Rs 1,600 crore at 70% PLF level”. Adani Mundra’s revenue at Q2, FY19-end was Rs 50 crore. Edelweiss Securities has assigned negative Rs 2/share for Adani Power’s Mundra units in its ‘sum-of-the-parts’ (SOTP)-based valuation of Rs 25. Axis Capital, which has assigned negative Rs 43/share for Mundra for Tata Power’s SOTP-based valuation of `90, said that the tariff revision “would re-rate valuations”.

CGPL entered into power purchase agreements (PPA) with Gujarat, Punjab, Maharashtra, Haryana, and Rajasthan in 2007 at a levelised tariff of Rs 2.26/unit. Adani Power had signed two PPAs with Gujarat (1,000 MW each) in 2007 at Rs 2.89/unit and Rs 2.35/unit, and one PPA with Haryana (1,424 MW) in 2008 at Rs 2.94/unit. Gujarat’s average power purchase price is Rs 3.49/unit.

The high-level committee had recommended reduction in fixed charge by Rs 0.20/unit, necessitating banks to reduce debts by Rs 4,240 crore for Tata and Rs 3,821 crore for Adani. The committee also suggested to allow pass through of coal costs, capped at $120/tonne.

Additionally, it also recommended to extend the existing PPAs by another 10 years after the completion of the 25-year tenure