Adani Power Ltd. has been in the news quite often over the last 12 months over acquisition of different Power projects. In August'14, Adani Power announced signing of agreements for acquisition of Lanco's 1200 MW Udipi Power plant and the deal was completed just after Q1 of this fiscal started. In November'14, Adani Power has announced takeover of Avantha Group's Korba West unit of 600 MW Coal-based plant. That deal too is expected to be completed anytime now. Apart from the Korba unit, Adani Power's operational power generation capacity stands at 10,440 MW, almost all of it being Coal-based projects. The addition of Korba unit will take it to over 11,000 MW capacity, consolidating it's position as the largest Private sector Power Producer in India.
Adani Power will not stop expanding here. As per currently known plans, the Korba West unit is already implementing addition of another 600 MW capacity, which Adani Power will expedite soon after completing acquisition formalities. Adani Group has also signed agreements for setting up 10,000 MW Solar power capacities with Govt. of Rajasthan. But this agreement has been signed by Adani Enterprises and not Adani Power. So it's likely that Adani Power may not play any role in that investment.
Adani Power is likely to pursue acquisition of other troubled Coal-based Power projects to add to it's capacities in the coming years. But at the moment, it will surely be looking at boosting profitability of it's existing operations. Things have been turning favourable on this front with substantial drop in Coal prices and increased production volumes by Coal India, which in turn is making more Coal available in the domestic market. A substantial part of Adani Power's capacity is running on imported Coal, which is putting pressure on the company's profitability. I think Adani Power would like to partly compensate that with domestic Coal to bring down the average cost.
Two other developments are under process, which should boost Adani Power's operations: One is the refinancing of it's debt under RBI's 5/25 scheme, where Banks can extend loans to large Infrastructure Projects for longer durations of upto 20 or 25 years, depending on the project's expected cash flows. Adani Power is already to talking to it's Bankers to converting it's loans under this scheme. If successful, it should help reduce the pressure to some extent on the company's Cash outflows towards Interest payment as well as Principal repayment. This will be an incremental gain apart from the possibility of reduction of rates in the coming monitory policy announcements.
The Second reason is the Govt of India's action towards improving the health of the several financially ill State Discoms. The Central Govt is closely working with many State Govts to work out packages for turning around their Discom's operations to make them sustainable. Thanks to huge accumulated losses as well as ongoing operating losses, many of the state discoms were either not able to make full payments towards power purchased from producers or not able to purchase more power to meet the increasing demand for power, leading to continued Load-shedding in several regions of different states. On one hand the Discoms are being pushed to reduce their leakages, which will make their operations become sustainable and on the other hand the Govts will step in to workout a package to take care of their past dues. This process will happen in stages over the next 1-2 years and we could start seeing some evident results only by end of next year.
The demand for power normally grows at a rate faster than the economy's growth rate. If the economy is expected to grow at 7-8% Y-o-Y, then Power demand could post a growth of around 10%. Many of the older power plants, which have been in operations for over 30 or 35 years, will need to be shut sooner or later as they are a lot less efficient than the newer ones, leading to high pollution as well as high cost of production. This is where the newer projects will come in as replacement capacities for the older capacities, primarily owned by State Utilities or NTPC.
To summarise..... the worst seems to be over for most of the troubled as well as operational power producers, who haven't seen profits since a very long time. Things are expected to improve substantially over the coming 4 to 8 quarters, though the improvements will vary from project to project.
Adani Power will not stop expanding here. As per currently known plans, the Korba West unit is already implementing addition of another 600 MW capacity, which Adani Power will expedite soon after completing acquisition formalities. Adani Group has also signed agreements for setting up 10,000 MW Solar power capacities with Govt. of Rajasthan. But this agreement has been signed by Adani Enterprises and not Adani Power. So it's likely that Adani Power may not play any role in that investment.
 |
Quarterly Numbers |
Adani Power is likely to pursue acquisition of other troubled Coal-based Power projects to add to it's capacities in the coming years. But at the moment, it will surely be looking at boosting profitability of it's existing operations. Things have been turning favourable on this front with substantial drop in Coal prices and increased production volumes by Coal India, which in turn is making more Coal available in the domestic market. A substantial part of Adani Power's capacity is running on imported Coal, which is putting pressure on the company's profitability. I think Adani Power would like to partly compensate that with domestic Coal to bring down the average cost.
Two other developments are under process, which should boost Adani Power's operations: One is the refinancing of it's debt under RBI's 5/25 scheme, where Banks can extend loans to large Infrastructure Projects for longer durations of upto 20 or 25 years, depending on the project's expected cash flows. Adani Power is already to talking to it's Bankers to converting it's loans under this scheme. If successful, it should help reduce the pressure to some extent on the company's Cash outflows towards Interest payment as well as Principal repayment. This will be an incremental gain apart from the possibility of reduction of rates in the coming monitory policy announcements.
The Second reason is the Govt of India's action towards improving the health of the several financially ill State Discoms. The Central Govt is closely working with many State Govts to work out packages for turning around their Discom's operations to make them sustainable. Thanks to huge accumulated losses as well as ongoing operating losses, many of the state discoms were either not able to make full payments towards power purchased from producers or not able to purchase more power to meet the increasing demand for power, leading to continued Load-shedding in several regions of different states. On one hand the Discoms are being pushed to reduce their leakages, which will make their operations become sustainable and on the other hand the Govts will step in to workout a package to take care of their past dues. This process will happen in stages over the next 1-2 years and we could start seeing some evident results only by end of next year.
The demand for power normally grows at a rate faster than the economy's growth rate. If the economy is expected to grow at 7-8% Y-o-Y, then Power demand could post a growth of around 10%. Many of the older power plants, which have been in operations for over 30 or 35 years, will need to be shut sooner or later as they are a lot less efficient than the newer ones, leading to high pollution as well as high cost of production. This is where the newer projects will come in as replacement capacities for the older capacities, primarily owned by State Utilities or NTPC.
To summarise..... the worst seems to be over for most of the troubled as well as operational power producers, who haven't seen profits since a very long time. Things are expected to improve substantially over the coming 4 to 8 quarters, though the improvements will vary from project to project.
No comments:
Post a Comment