Brokers’ Call: Adani Power a sell, says CLSA

Foreign brokerage CLSA has assigned a ‘Sell’ rating on Adani Power with a 12-month price target of Rs40. The company is currently trading at Rs54.40 on the BSE. “We believe the company has a weak case for tariff revision and we remain concerned about the fuel security and high leverage of the company,” the CLSA report said.

The brokerage has cut its FY13- 15 earnings by 10 – 30% factoring in second quarter results and lower utilisation rates of the power projects. Adani would need 27-36 mt of coal in FY14- 15 for its power projects in Mundra, Tiroda and Kawai. The brokerage expect only 8- 8.5 mt of net requirement to be met by AEL’s Bunyu Mines. The company will have to source additional requirements from domestic coal sources or via imports.

“With the current fuel mix and power purchase agreements, the balance sheet of the company would be under stress and equity infusion by AEL is imminent,” the CLSA report said.