Adani Power Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Earnings surge on Godda ramp and demand: Recurring EBITDA grew 85% YoY to Rs. 4,336 Cr, driven by the new Godda plant, higher offtake across existing plants, and a strong merchant market.
• Balance sheet transformed by deleveraging: Total debt fell from Rs. 42,252 Cr to Rs. 32,214 Cr in six months, halving the Debt/EBITDA ratio and prompting management to seek a credit rating upgrade.
• Regulatory overhang cleared: Most legacy regulatory matters have been resolved, bringing stability to operations and unlocking past dues that further strengthened the balance sheet.
• Thermal expansion is back on the table: Management is actively evaluating ~6,000 MW of additional thermal capacity beyond the current ~15,000 MW, with a BTG order already placed for Mahan Phase-II.
• What to watch next quarter: Progress on the credit rating review, formalization of the 6,000 MW expansion plan, and any update on the Bangladesh PPA given political noise.

Financial Performance & Deleveraging

• Revenue engine: 44% recurring revenue growth came from high plant availability, inclusion of Godda, higher dispatches under contracts due to growing power demand, and merchant sales.
• Cost control: Imported fuel price declines kept fuel cost growth at 29%, below revenue growth; other operating expenses rose 27% largely due to Godda inclusion and high PLF.
• Finance cost discipline: Finance costs remained under control due to deleveraging through prudent use of surplus cash flow.
• Leverage metrics: Fixed Asset Coverage Ratio improved over 40%; Debt to EBITDA on a trailing basis nearly halved, with Godda contributing only a partial period of EBITDA while its project debt is fully reflected.
• Trade receivables cleaned up: Largely all issues resolved; the balance reflects only income recognized on September 30th and subsequently realized, with no large outstanding prior-period regulatory claims.
• Tax shield: Carry-forward losses of Rs. 24,000-25,000 Cr will provide a tax shield for some time; the company may enter the tax bracket thereafter.

Shailesh Sawa: "The successful resolution of our regulatory issues has brought much-needed clarity and stability to our operational landscape. It has also redefined our path forward, and created a foundation upon which we can build a financially resilient future."

Operational Drivers

• Demand backdrop: Aggregate power demand grew 7% in H1 FY24, with peak demand hitting a record 240 GW; management projects similar growth over the next few years.
• Plant performance: PLF and dispatches improved due to higher offtake at Mundra, Udupi, Raipur, and Mahan, plus the incremental contribution of Godda.
• Godda ramp: The recently commissioned Godda plant achieved operational stability and high availability, contributing incrementally to volumes.
• Mahan turnaround: The Mahan plant, acquired in FY22, has been successfully turned around.
• Bangladesh plant: Achieved 69% PLF with 99% availability; H1 revenue of Rs. 3,500 Cr, EBITDA of Rs. 892 Cr, PAT of Rs. 100 Cr after depreciation and finance cost. Coal is procured via FSA and open market, largely imported.
• Coal security: Inventory at power stations is comfortable; a good quantity was secured in the recent SHAKTI B(viii) auction, and management sees no issue for at least the next three months.

Merchant & Open Capacity Strategy

• 3,000 MW open capacity: Deployed either to the merchant market or short-term contracts, renewed as tenders come; the merchant market has been strong over the last year and contributed meaningfully to reported EBITDA.
• Two-pronged approach: Management will continue to look at both merchant and short-term contract opportunities as they arise.

Shailesh Sawa: "It is a two-pronged strategy. As you know, the merchant market has been quite good in last one year or so, which has contributed to achieving a good amount of EBITDA of what we have reported to you, and we will keep looking at the opportunities."

Gujarat PPA & Regulatory

• Index adjustment taken: A Rs. 1,200 Cr adjustment was taken last quarter due to index adjustment per a CERC order; tariff computation is based on GR, base rate, and CERC indexation for six months.
• No further adjustment needed: The company continues to recognize revenue based on the same method, and no subsequent adjustment is required.
• Political risk deflection: On a question about political risk affecting the company, including the Bangladesh situation, management declined to engage beyond stating the PPA is legally binding and backed by a sovereign guarantee.

Expansion & Capex

• Thermal capacity expansion: Plans for about 6,000 MW total over and above the current ~15,000 MW are already planned and under active consideration; the company is evaluating expansion at locations with adequate infrastructure and will move forward once plans are formalized.
• Mahan Phase-II: The main BTG order was placed with BHEL about 2.5 months back; the company is using a Split Package Contracting Philosophy with approximately 50 packages to be contracted, and the team is in the process of placing orders for the rest.
• FGD timeline: Orders placed for FGD for 11,600 MW capacity; small CAPEX this year, with large CAPEX coming in FY26-27, as installation takes 18-24 months. Regulated ROE will be earned on FGD across all PPAs.
• Inorganic opportunities: Management evaluates opportunities as they come, citing a strong track record of turning around stressed assets: four of the eight operating thermal plants were acquired.

Shailesh Sawa: "I must tell you that today in our fleet of eight operating thermal plants, four of them have been acquired by us, and if you look at our track record, we have a strong track record of turning around these stressed assets."

Balance Sheet & Ratings

• Rating trajectory: Post-merger, India Ratings assigned A with positive outlook and CRISIL assigned A/Stable; management intends to approach agencies again for a review and is hopeful of an improvement in a few months, citing a significantly improved credit profile.
• Cost of borrowing: Average cost around 9.05%; borrowing is MCLR-linked, and MCLR has risen significantly over the last 16-18 months.

Shailesh Sawa: "We do intend to approach the ratings agencies again for review and hopefully in few months from now we can see it. Of course it will depend on their evaluation, but we are quite hopeful that the credit profile of the Company has improved significantly. We have a very strong case for rating improvement."

Guidance & Commitments

Key Metrics