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Adani Power – Dirty Energy – Avoid

July 23, 2009

Adani Power Ltd (APL) is a power project development company and plans to add 6,600MW power generation capacity by FY12 with total capital cost of Rs284bn.

Adani Global, a wholly owned subsidiary of AEL, has entered into agreements with holders of long-term exploitation licences to exclusively mine coal in Bunyu Island, Indonesia.

All of Adani’s Power plants will be COAL based which is globally considered as Dirty Energy. The Indian Government is mere spectator with its flawed energy policy by not encouraging renewable energy and dancing to the tunes of Dirty Energy producers. Worldwide, dirty energy plants are forced to shutdown and Wind Power Mills are established and Suzlon is cashing on the same.

Details of the Issue:
Issue opens : July 28, 2009
Issue closes : July 31, 2009
Issue size : 30.16 crore equity shares
Face value : Rs10 each
Price band : Rs90-10
Retail portion : Not less than 8.8 crore shares

Valuation:
The NAV works out to Rs84 per share. Add to this the cash of Rs12.5-14 per share raised from the public issue, the fair value per share is close to the higher end of the offer price band. Thus, the upside for investors would largely accrue from the additional capacity of 3,300MW, which is still on a planning stage.

Compared with its peers such as National Thermal Power Corporation (NTPC), Tata Power and Reliance Power, the issue is priced at 3.9-4.1x its book value, which is at a premium to its peers’ valuations.

Recommendation:
If not today, tomorrow, the company will be forced to BUY Carbon credits for the extremely heavy environment pollution it will cause thus directly hitting on its bottom line.

Adani Power’s indicative IPO price does not offer the sufficient discount for the risks that have to be taken before projected profits can materialize.

However, in reality, the market Euphoria may lead the stock to list at small premium [You know better how it works]. We are personally not subscribing to the issue and recommend value investors to stay away. Speculators can have their way 🙂

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