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Spark Capital: Lanco Infratech - 3QFY13 Results Review




Spark Capital Advisors(India) Private Limited


14 Feb 2013





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Lacklustre quarter; maintain our cautious stance due continuing headwinds Lanco reported yet another disappointing quarter with a net loss of Rs. 4.65bn. Adjusting for the forex loss of Rs. 429mn and for the profits eliminated on intergroup transaction result in an adjusted net loss of Rs. 4.45bn vis-à-vis a loss of Rs. 3.60bn in 2QFY13 and a profit of Rs. 2.74bn in 3QFY12. Anpara continues to make losses at ~Rs. 1.40bn. Multiple issues exist like a) low PLF (~52% in 3Q) due to low coal availability from CIL b) coal-handling infrastructural bottlenecks hindering efficient off take of coal from the rakes provided by CIL c) high interest cost (~14%) on the debt of ~Rs. 37bn in the entity, and d) un-collected dues from UP at ~Rs. 5.10bn. Liquidity will ease only if the transitional financing mechanism from PFC/ REC reaches the entity. Issues at other power plants persist – a) Amarkantak II is awaiting decision from Supreme Court on tariff finalization, b) Amarkantak I still unable to collect ~Rs. 7.50bn of dues from UP, c) Kondapalli II is witnessing ever lower PLF ~16% due to gas supply shortage from Reliance KG D6 and d) receivables from Karnataka swelling to ~Rs. 18.00bn at Udupi. Griffin Coal will get some respite as Bluewaters Power will increase the coal price by ~USD 10/ tonne going forward; Griffin will also apply this rate retrospectively which will enable it to collect arrears of ~USD 55mn from Bluewaters. Valuation Discussion Favourable developments at Griffin and a possible stake sale at the power subsidiaries notwithstanding, issues like high debt-equity at both the parent level as well as the consolidated level and larger operational issues - fuel supply constraints, tariff resolution at Amarkantak II and Udupi, receivables from UP & Karnataka and losses at Griffin - remain unabated. Company has to meet ~Rs. 26bn of debt repayment in the next one year; with cash level losses of Rs. 90mn for 9MFY13 and a tepid performance expected in FY14E the Company is in dire need of external capital. Also, the USD 3.5bn lawsuit against Griffin coal filed by PCFL (‘main case’) is still sub-judice and resolution/ decision is expected only by mid-2013. We maintain our cautious stance on the stock due to the above mentioned concerns even as we tweak our FY13 and FY14 estimates to reflect the current quarter’s performance and to reflect the delay in ~4GW of projects under construction. We continue to value the stock on an SoTP basis yielding a new target price of Rs. 13.9/ share (Rs. 15.0/ share earlier). ‘Add’ with a TP of Rs. 13.9/ share.

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