Adani Power Ltd, the country’s largest private sector Thermal Power producer approves slump sale of Mundra power business to its subsidiary with Appointed Date being 31st March, 2017.

Adani Power Ltd is a part of the Adani Group. The Company is engaged in providing electric power generation by coal-based thermal power plants and coal trading. Its business activity is undertaken at Mundra Thermal Power Plant of the Company in Gujarat and Thermal Power Plant of its subsidiaries at Tiroda (Maharashtra), at Kawai (Rajasthan) and at Udupi (Karnataka). It has approximately five power projects. The Company operates an aggregate of approximately 10,480 megawatts generation capacity comprising of over 4,620 megawatts at Mundra; approximately 3,300 megawatts at Tiroda; over 1,320 megawatts at Kawai; approximately 1,200 megawatts at Udupi, and over 40 megawatts (solar) at Kutch, Gujarat. It focuses to sell the power generated from these projects under a combination of long term Power Purchase Agreements and on merchant basis. Its subsidiaries include Adani Power Maharashtra Limited, Adani Power Rajasthan Limited, Udupi Power Corporation Limited, Adani Power Resources Limited and Adani Power (Jharkhand) Ltd. The Company enjoys a market cap of Rs 10,549 Crores.

Transaction

Adani-Power-Financial-Revival-Internal-Restructuring-1

Note: The proposed transfer is an internal transfer to the subsidiary of Adani Power Ltd only. The final shareholders being remaining the same, there is no loss of economic interest to any of the shareholders.

Valuation

Particulars Amount
Enterprise Value of the demerged business 22,475
Less: Debt -21,772
Less: Debt like Items -935
Add: Cash and Cash equivalents 338

Revenue from operations reported on standalone basis for the year ended 31st March 2017 is totalling to Rs 11,018 Crores. So enterprise value is about 2x revenues FY 2017.

Interest Cost for FY 2017 is Rs 3,102 Crores, which means Interest cost percentage on Debt mentioned under this valuation will be 14% (Interest/Debt).

Slump Sale or Slump Exchange?

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  • Hi, I have two questions:
    1. How such transaction helps adjusting against capital reserve of Adani Power Limited and what are the advantages of that? How it helps Adani Power in managing its debt to Equity Ratio?
    2. How will you justify the market price per share post arrangement of Rs 27?

    • a1. The demerged undertaking is incurring revenue losses for the year ended 31 st March 2017. The difference of net proceedings from the transaction is directly recorded in capital reserve account without taking any impact in P&L. Advantage being that such revenue losses instead of getting hit to Free Reserves are being adjusted against Capital Reserves. There is no change in Equity, whereas the debt pertaining to demerger business is taken out of the balance sheet which will reduce the debt equity ratio.

      a2. The market share price Rs 27 is taken from BSE on post announcement date i.e. 22 nd June 2017. This is done just to show position of the market cap, post announcement to reflect the sentiments of the investors.