Adani Power Strategic Analysis.

5/20/2018 Adani Power Strategic Analysis.

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Adani Enterprises Limited primarily engages in trading, energy, real estate and agro-relatedoperations. It

involves in trading edible oils; and agro-commodities, including food grains, castor oils, pulses, soyameals,

rapeseed meals, and castor meals, as well as involves in edible oil refining business. The company also offers integrated storage, handling, and transportation infrastructure for food products. In addition,

it engages in developing integrated townships, and commercial and residential properties; and provides logistics solutions for handling a range of cargos through a network of container terminal and ICDs. Further, the company involves in oil and gas exploration, power trading and transmission, coal

mining, and coal trading activities. Additionally, it engages in the supply of natural gas to industrial, commercial, domestic, and CNG customers; provision of port based logistics services for cargos and vessels; and development of port based special economic zones, as well as provides IT enabled services. The

companywas formerly known as Adani Exports Limited. Adani Enterprises Limited was founded in1988 and is

headquartered in Ahmedabad


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STRENGTHWell established and vast transmission and

distribution network.

Highly qualified engineering and technical personnel.

Regulatory framework is further facilitated withenactment of Electricity Bill, 2003.

The Electricity Bill, 2003 holds promises for the powersector and certainly for the consumer by way of

competition reliability and rationalizedtariff structure.

Emergence of strong and globally comparable centralutilities (NTPC, POWER GRID).


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Strong execution track record on the back of the huge success of Mundra Port The diversified nature of theAdani Group (especially its presence in ports andcoal trading) augurs well for Adani Power. Stellar operational efficiency (FY10 average PLF was 85%+ compared withIndias national average of 78%)

Minimal exposure to merchant power (23% compared with JSWs 56%) The diversified nature of the Adani Group helps in the growth of Adani Power 2. Most of the equity share capital and Debt has been invested in the creation

of assets which are operational. This has led to Increasing Revenues YoY. Thisshows a strong Project - Execution record

3. Operating Profit to Sales ratio for Adani Power is higher than the Nationalaverage. This indicates higher Operational Efficiency of Adani Power

4. Since the largest supplier of coal is Adani Enterprises, this reduces the cost ofcoal to Adani Power

5. One of the major players in the Indian power industry 6. Has a small yet effective workforce of approx 2000 employees


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WEAKNESS : Lack of proper metering and theft has led to large scale losses. Only 51%of the power

generated is billed and only 41% is realized Moreover, Government provides power to agricultural sector at subsidized rates and also

free of cost in some states. All these factors have resulted in financial disorder of the StateElectricity Boards (SEBs). Restoration of SEBs financial health and improvement in their operating performance

continues to be a critical issue. The Government of India has signed a Memorandum ofUnderstanding (MOU) with various states reflecting the joint commitment of centre andstates to undertake reforms in a time bound manner

Poor return to utilities, which affect their profitability and capacity to make furtherinvestments

Increasing gap between unit cost of supply & revenue, approximately Rs1.10/ unit Managerial and financial inefficiencies in state sector utilities have adversely affected

capacity addition and systems improvement Non-availability of quality coal may hamper thermal plants efficiency in power

generation


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All ofAdanispower plants use Chinese equipment Conflict of interest given that other promoter ownedcompanies are also in power generation Limited bargaining powervis a vis delays in coalsupplies from Adani Enterprises as it is Adani Powersholding company

Present only in very few states namely Gujarat,Maharashtra and Haryana

2.Has a very low market share even compared to theprivate players like Tata Power and Reliance Power


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OPPORTUNITY India has substantial non-conventional energy

resource base and technologies to meet growing powerrequirements by tapping this energy.

100% FDI in all sectors allowed

Opportunity to sell generation to Trading company

50,000 MW Hydro initiative launched

Ultra Mega Power Projects


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private sector (this is equivalent to 10xAdanisinstalled capacity)and Adani Power will be a relatively strong contender for theseUMPPs Given groups presence in coal mining and Indias rising coalimports, domestic coal mining offers a huge opportunity for

Adani Enterprises This in turn will reduceAdani Powers coal cost as currentlyAdani Enterprises is thebiggest supplier of coal to Adani Power

Can diversify into Hydro-electric power generation

2.Adani Group has a presence in coal imports and coal mining.This offers a significant opportunity for Adani Power to expandits operations and compete with other contenders for UMPPs

3.Opportunity to establish presence in other parts of the country


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THREAT Inability of SEBs to raise funds, as most of the SEBs is on the verge

of bankruptcy due to poor operational performance. Adding to the problems,SEBs need huge money to measure up competition from efficient privateplayers

The major risk of privatizing a critical sector like power is the precedence

of commercial over public interest. Some of these interests that will take a backseat include development of environment friendly generation and provision ofelectricity for rural areas. The new Electricity Act does not provide any specificfinancial incentives for private players to address public issues

The SBEs which are right now holding 60% of total installed capacity, will behit adversely by some provisions of the new electricity act such as delicensingof generation and open access for IPPs and CPPs, there by such units will take

away the most lucrative customers (like industrial and commercial users) fromthe SEBs. This will not only affect SEBs but also the entire power sector for nearterm.

Poor infrastructure has led to heavy T&D losses. Old and poor transmissionand distribution network has led to frequent power outages and poor quality ofpower


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The 5x increase in private sector generation capacity byFY13 could result in merchant power rates gettingcompressed. The rising Maoist insurgency (with its greatest influencein states having the largest coal resources) could result indelays and higher costs. The improving trend in T&D losses due to risinginvestment in T&D could result in the fading of Indiaspower deficit at a quicker pace than expected.

Changes in International prices of coal.2.Changes in International policies regarding import ofcoal.3.Increase in private sector power generation could lead tocompressed rates of merchant power


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POLITICAL

1. Government is encouraging private players to produce power and also carryout its transmission and distribution activities. There has been significantIncrease in private participation.2. Indistinctness involved in complicated tariff rates has been done away withby the government.

3. Regulatory authorities like Central Electricity Regulatory Commission(CERC) & State Electricity Regulatory Commission (SERC) are appointed, toregulate the power industry at centre and state level4. The Indian government has set large scale goals in the 11th plan for powersector due to which the power sector is poised for significant expansion.5. Unbundling of the State Electricity Boards into separate Generation,Transmission and Distribution units and privatization of power distributionhas been initiated either through the direct privatization or the franchiseeroute. While there has been a slow and gradual improvement in metering,billing and collection efficiency, the current loss levels still pose a significantchallenge for distribution companies.


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ECONOMICAL

In order to provide availability of over 1000 units of per capitaelectricity by year 2012, it has been estimated that need-basedcapacity addition of more than 100,000 MW would be required.This has resulted in massive invstment plans being proposed inthe sub-sectors of Generation Transmission and Distribution2. The Ministry of Power plans to establish an integrated

National Power Grid in the country by 2012 with close to 200,000MW generation capacities and 37,700 MW of inter-regionalpower transfer capacity. Considering that the current inter-

regional power transfer capacity of 20,750 MW, this is indeed anambitious objective for the country.3. For increasing the generation capacity over the next 8-10

years, the corresponding investments in the transmission sectoris also expected to expand


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e rea o e en ry o newcompetitors

Highly capital-intensive industry and hence demandshuge investment

Power producers Behemoth like NTPC, SEBscontributing around 85 % of total power produced

Ditto for Power Grid Corp. of India in Transmissionand Distribution Segment

Major plans by big companies like Reliance power,Adani power, Lanco etc. to make a entry into powersector after market opened up for private sectorthrough Electricity Act 2003 and subsequent reforms

However obtaining regulatory approvals,fuel linkages,land etc. still remain the major bottlenecks.

Hence the threat of new entrant appears to be low


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e rea o su s u e pro uc sor services

Power does not have substitute but it can be generatedfrom different sources of energy.

Currently thermal power is dominant in India, coal beingthe major raw material.

Coal availability is limited and therefore power fromnuclear, hydro and other renewable sources could be usedas substitute for thermal power in future.

Agreements with various countries for nuclearcollaboration will give major impetus to Nuclear power

plants Although demand for power outstrips its supply, goingforward, thermal power plant companies have threat fromnon-thermal power generators.

Hence the threat of substitute products is medium


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The bargaining power of suppliers

Coal is majorly used as a feed for generating power. The supply of coal in India is limited and hence coal

players are in dominant position.

Power companies are required to import coal if thedomestic supply is not sufficient, which proves to bean expensive affair.

With companies like Lanco, Adani Power buying coalmines in Indonesia, Australia etc. to import bettergrade coal than available in India, market dominanceof Govt. Companies like Coal India will subsidegradually.

However looking at the present situation, the powerof suppliers is high.


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e n ens y o compe verivalry within the Industry

Power producing companies No competitive rivalry asdemand for power is way above its supply and all the powergenerated is used up.

However, with government encouragement, privateparticipation is expected to increase in the coming years totake advantage of huge demand for power

Power equipment market - Market leader like BHEL isfacing tough competition from L&T, Alstom, Doosan andmost importantly Chinese suppliers.

Major orders of Boiler, Turbine and Generator grabbed byChinese suppliers from most of the private sector clients.

So overall the intensity of competitive rivalry is medium.


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POWER

Adani Power seeks merger of APML shareholding entity: Adani Power Ltd (APL), a powergeneration arm of Ahmedabad-based diversified business conglomerate Adani Group, has decided tomerge shareholding entity of Adani Power Maharashtra Ltd (APML) in Adani Power. The move isaimed at making APML a 100 per cent subsidiary of APL.APL currently holds 74 per cent stake inAPML, a joint venture company floated to execute 3300 Mw power project at Tiroda in Maharashtra.Adani Power did not disclose the name of its JV partner in APML, which it plans to merge with it.However, as per Adani Power's Red Herring Propspectus filed with Securities and Exchange Board of

India (SEBI) Millennium Developers hold 26 per cent in APML. "In order to hold 100% of AdaniPower Maharashtra Limited (as against current holding of 74%), it is decided to evaluate the proposalto merge 26% shareholding entity of Adani Power Maharashtra Limited in Adani Power Limitedsubject to necessary permission and approvals in this regard," Adani Power said in a filing to BSE. Theshareholding entity of APML will be offered shares of Adani Power post its merger with powergeneration arm of billionaire Gautam Adani promoted Adani Group.

Adani group eyes coal assets in Mozambique for $400 mn: Adani Enterprises, the Gujarat-basedAdani groups flagship firm, is in discussions with the Mozambique-based NCondezi Coal to acquire a

minority stake in its coal assets. The deal with the AIM-listed NCondezi is expected to be in the rangeof $350-400 million (Rs 2,000-2,200 crore). Standard Chartered Bank is advising NCondezi on findinga partner.

According to sources in the know, Adani Enterprises is looking to become a strategicpartner of NCondezi by acquiring a part of its assets. The acquisition is for its subsidiary, AdaniPower, which has targeted a 20,000-Mw expansion plan in the power sector by 2020.

Adani Power Strategic Analysis.

Documents

growth of adani power

power trading

power grid

merchant power

adani enterprises limited

adani exports limited

indian power industry

trading edible oils