Under the deal agreement, Adani Power will pay Rs 2000 crore in cash to Lanco and will also take over long-term debt of Rs 4000 crore.
Billionaire entrepreneur Gautam Adani-controlled Adani Power last week acquired Lanco Infratech 's 1,200 megawatt (MW) Udupi power plant in Karnataka for Rs 6,000 crore.
Under the deal agreement, Adani Power will pay Rs 2000 crore in cash to Lanco and will also take over long-term debt of Rs 4000 crore.
The plant is based on imported coal and has a 4mtpa captive jetty and sells 90 percent of its output to Karnataka Discom and remaining 10 percent to Punjab, with tariff determined by existing CERC norms.
For Lanco, the deal gave an opportunity to reduce its debts, while for Adani too the acquisition is value-accretive in the long term, says an IDFC report.
The deal gives Adani Power an operational thermal power plant of 1200MW operating on regulated basis in Karnataka. Moreover, Udupi Power Corporation (the SPV that operates the plant) has an agreement with Karnataka government to expand capacity by 1320MW, the report said.
The power plant has been operating at low plant load factor (PLF) on account of financial problems arising out of lower revenue realised compared to cost due to dispute between Karnataka Discom and Udupi Thermal Power Station over capital cost. However, in Q4FY14, the availability improved to 91 percent, even the PLF increased to 80 percent.
In its final tariff order in February 2014, the CERC approved capital cost of Rs 5600 crore against Rs 6200 crore incurred and equity of Rs 1400 crore against an incurred equity of Rs 1900 crore, said the note.
"At the CERC-approved capital cost, we estimate return on invested equity will be around 10 percent against 15.5 percent allowed by CERC in the base case," the IDFC note said, adding that the plant can make an additional return of 2-3 percent from fuel savings (higher coal cost implies higher savings from fuel efficiency) and higher plant load factor (50 paise/ kwh incentive on generation >85 percent PLF).
Believing that the acquisition is value-accretive for Adani Power in the long term, IDFC maintains outperformer on the stock, with a target price of Rs 69.
Adani Power stock price
On August 19, 2014, at 14:12 hrs Adani Power was quoting at Rs 55.00, up Rs 1.00, or 1.85 percent. The 52-week high of the share was Rs 68.50 and the 52-week low was Rs 31.65.
The company's trailing 12-month (TTM) EPS was at Rs 4.65 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 11.83. The latest book value of the company is Rs 27.11 per share. At current value, the price-to-book value of the company is 2.03.
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