Mundra-Coal JV hedge fares better
Mundra PPA renegotiation can provide relief; Maintain Neutral 2QFY20 consol. adj. PAT was up 27% YoY to INR3.5b (in-line) on better performance of the Mundra-Coal JV hedge. PAT has been adjusted for INR1.6b impact of taxes on KPC and coal SPVs, INR0.7b of dividend from Cennergi (held for sale) and INR0.5b of one-time gains on other income. Operational performance (EBITDA and PAT of JV companies) was up 10% YoY to INR21.6b (v/s est. INR21.1b).
* Adjusting for INR0.6b prior period related taxes at KPC, Mundra (EBITDA) and coal JVs (PAT) increased 12% YoY to INR4b. Given the decline in coal prices, there was no significant impact of DMO obligation for its JVs. Fuel under recoveries at Mundra stood at INR0.5/kWh (v/s INR0.9/kWh in 2QFY19).
* RE (ex-standalone) EBITDA was up 1% YoY to INR4.6b on lower Wind PLFs. Capacity increased 23% YoY to 2.1GW.
* Maithon EBITDA stood at INR1.8b (v/s INR1.6b in 2QFY19) on account of favorable order for capex approval.
* Interest cost rose 9% YoY to INR11.3b. Reported tax at INR1.9b included INR1b of dividend distribution tax (current and future provisions) for its coal SPVs.
Debt remains elevated; Maintain Neutral
Net debt remains elevated at INR476b due to continuing capex and stretched receivables for its renewable portfolio. Besides, the upcoming new regulations for Indonesian coal mines (concerning tax and royalty) could be an overhang over the stock. The amendment of Mundra PPA, on the other hand, still awaits state approval and we do not build in any benefit from this. Successful renegotiation of this PPA - based on HPC recommendations - would provide an upside to our estimates. Maintain Neutral with SOTP-based target price of INR66/share.
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