Adani Power Limited IPO

Adani Power Limited has recently posted its draft prospectus for filing an IPO. Here is an overview of Adani Power Limited IPO

Business of Adani Power Limited

Adani Power Limited will be in the business of developing, operating and maintaining power projects in India. It is part of the Adani Enterprise Limited, which is a large Indian conglomerate with revenues of over Rs.196,097.10 million in fiscal 2008. The parent company is one of the three largest coal traders in India and the largest power trading company in India (in the last three years).

The group itself is looking at vertical integration with power projects and it currently has presence in:

• Coal Mining
• Coal Trading
• Shipping
• Power Generation
• Power Transmission
• Power Trading
• Owning and Operating a SEZ

Adani Power Limited has four thermal power plants that are in various stages of development:

1. Mundra Phase 1 & 2 with a capacity of 1,320 MW. Both phases are split into sub – generation of 330 MW each. The first phase of 330 MW each are expected to get commissioned by June 2009 and the full project is expected to get commissioned by Feb 2010.

2. Mundra Phase 3 with a capacity of 1,320 MW, out of which 660 MW will be commissioned in Jan 2011 and the remaining by June 2011.

3. Mundra Phase 4 project with a capacity of 1,980 MW, out of which 660 MW will be commissioned by Aug 2011 and the remaining by April 2012.

4. Tiroda Power Project with a capacity of 1,980 MW, out of which 660 MW will be commissioned by July 2011 and the remaining by April 2012.

All dates are current estimates.

The company has applied for sector specific SEZ approvals for all its coal projects. If granted, this will give them substantial tax advantages.

Since Adani Power is part of the Adani group which is a major coal producer and trader — it will benefit in terms of obtaining raw materials in a timely and secured fashion.

Adani Power is located in the western region and has got a locational advantage; both in terms of sourcing as well as distribution. The power plants are located in the rapidly industrializing areas of Maharashtra and Gujarat and will benefit from the growth of these states.

India faces acute power shortage and with the deregulation in the power sector — there are plenty of opportunities up for grabs for private sector players. According to CERC the power shortage at Dec 2008 was 15,175 MW and so the company exists in a sector which is set for growth and has inherent demand.

Key Risks Facing Adani Power Limited

1. No Operating History: Adani Power has no current operational power projects or any other revenue generating activity that can provide a basis for evaluating its business.

2. Long Gestation Period: Power projects have a long gestation period and Adani Power will take a long time to get into the positive cash flow generating territory.

3. Significant Indebtedness: Adani Power has assumed significant debts to the tune of Rs.49,919.04 million and this increases its vulnerability to downwards economic conditions. Since the company has so much debt already — it limits Adani Power’s ability to raise more cash in the future if required.

4. Potential Promoter Conflict of Interest: Adani Power will rely heavily on its promoters to provide it financial know – how and access to key personnel. Since, some promoter group companies operate in the same business areas — this poses potential conflict of interest.

Financial History

Since the company has not engaged in any commercial activity till date there isn’t enough financial information to go evaluate the IPO.

Objectives of the Adani Power IPO

Adani Power is getting in the IPO to raise funds primarily for the following:

1. Finance the Mundra Phase IV 1980 MW Power Project partly

2. Fund the subsidiary that will engage in the construction and development of the 1980 MW Tiroda Power Project.

Conclusion

These were some key features of the Adani Power IPO and evaluating these benefits and risks should give you a better understanding of the company and help decide whether you should be invested in such a company or not.

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NHPC IPO is the next big power IPO, to read about that click here.