Another Blow to Adani Enterprises’ Unlikely Australian Coal Scheme

Adani Power Ltd.’s latest numbers add to a pile of evidence that doesn’t bode well for the company’s plans to turn the Galilee Basin of northern Queensland into a huge and probably money-losing coal mine.

Adani Power lost a net US$129 million for the 2014-15 fiscal year, with net interest expense rising by 32 percent year on year to US$852 million, which is more than US$200 million in excess of earnings before interest and tax.

Adani Power’s financial leverage continued to rise, in the meantime, with net debt reaching US$7.4 billion in April.

The results mean not only that Adani Power has lost money in each of the last four years but that Adani’s arguments for the benefits of vertical integration are looking even less realistic.

At the end of the day, risking another $10 billion to try to make good on a poorly timed initial $1 billion investment is looking increasingly unlikely in the face of the halving of thermal seaborne since 2010. We wrote last week about how the recent corporate restructuring of Adani Enterprises diminishes the chances the Queensland project will be built.

THESE LATEST NUMBERS REPRESENT YET ANOTHER NAIL IN THE COFFIN FOR THE GALILEE BASIN PITCH. Among the details from the management report that don’t put Adani Power in a very good light:

• For the final quarter (4QFY2014-15), revenues declined 22 percent year over year (although it is not clear from the report as to why this significant decline occurred).
• An Adani Power net loss for 2014-15 of US$129 million, even though the company paid no tax. In comparison, Adani Power reported a net loss of US$49 million in 2013-14.
• Net debt at the end of March of US$6.4 billion, up US$150 million over the past year despite the sale of Adani Transmissions to its parent company.
• Completion of the acquisition of the 1.2GW Udupi Coal Power Plant from Lanco Infratech for US$1 billion, taking Adani Power’s net debt up to US$7.4 billion at the end of April. Adani Power has also made a down payment to acquire another 600MW coal-fired power plant in India in 2015-16 (Korba West Power Co). In total, net debt is eight times the shareholders funds of Adani Power.

Adani Power’s share price over the past five years has declined by 65 percent from Rs120 per share, dramatically underperforming the Indian stock market.

Granted, Adani Power is only part of the Adani Enterprises group, but its sustained failure to generate returns for shareholders says a lot.

The underperformance is surely part of the conversation at Adani as executives re-evaluate the merits of investing more capital in a losing coal proposition in Australia.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.