Adani Power Ltd:Annual Report 2023-24 Analysis

Adani Power Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Adani Power Limited was established in 1996 as a private limited company. It’s a part of the Adani Group, one of India’s largest conglomerates.

Headquarters Location and Global Presence: The headquarters of Adani Power is located in Ahmedabad, Gujarat, India. While primarily focused on the Indian market, Adani Group has international footprints, which indirectly impacts Adani Power’s global standing.

Company Vision and Mission:

• Vision: To be a global leader in power generation and distribution, committed to providing reliable, affordable, and sustainable energy solutions.
• Mission: To build and operate world-class power plants, leverage advanced technologies, and contribute to India’s energy security while adhering to the highest environmental and social standards.

Key Milestones in their Growth Journey:

• 2009: Commissioning of the first power plant at Mundra, Gujarat.
• Expansion: Rapid capacity addition through Greenfield projects and acquisitions.
• Strategic acquisitions: Purchase of power plants to consolidate market share.
• Focus on supercritical technology: Implementation of advanced power generation technologies for higher efficiency.

Stock Exchange Listing Details and Market Capitalization:

• Adani Power is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
• Check current market capitalization data on financial websites like Google Finance, Yahoo Finance, or BSE/NSE websites.

Recent Financial Performance Highlights:

• Refer to Adani Power’s latest annual reports and quarterly financial statements for specific revenue, profit, and debt figures.
• Analyze key performance indicators such as plant load factor (PLF), revenue per unit of electricity generated, and cost efficiency.

Management Team and Leadership Structure:

• The company is led by a Board of Directors with experience in power generation, infrastructure, and finance.
• Key personnel includes the Chairman, Managing Director, and Chief Financial Officer. Refer to the Adani Power website for the most current information.

Any Notable Awards or Recognitions:

• Review Adani Power’s website and press releases for any announced awards, recognitions, or ESG ratings they have received.

Their Products #

Complete Product Portfolio with Categories:

• Thermal Power Generation: Coal-based power plants using supercritical and ultra-supercritical technologies.
• Renewable Energy Integration: Plans for integrating renewable energy sources.
• Power Transmission: Evacuation infrastructure for generated power.

Flagship or Signature Product Lines:

• Ultra-Mega Power Projects: Large-scale thermal power plants with significant generation capacity.

Key Technological Innovations or Patents:

• Supercritical Technology: Higher efficiency and lower emissions in coal-fired power plants.
• Flue Gas Desulfurization (FGD): Technologies for reducing sulfur dioxide emissions.

Manufacturing Facilities and Production Capacity:

• Adani Power operates multiple power plants across India with a combined generation capacity. Look to financial reports for most accurate information.

Quality Certifications and Standards:

• ISO certifications for quality management, environmental management, and occupational health and safety.

Any Unique Selling Propositions or Technological Advantages:

• Large-Scale Project Execution: Demonstrated capability to develop and operate large-scale power projects.
• Fuel Security: Access to fuel sources through vertical integration.

Primary Customers #

Target Industries and Sectors:

• State Electricity Boards (SEBs)
• Power Distribution Companies (DISCOMs)
• Industrial consumers (through power purchase agreements)

Geographic Markets (domestic vs. international):

• Primarily focused on the domestic market in India.

Major Client Segments (agricultural, industrial, residential, etc.):

• Industrial consumers
• Residential consumers (indirectly, through distribution companies)
• Agricultural consumers (indirectly, through distribution companies)

Any Notable Government Contracts or Institutional Clients:

• Power Purchase Agreements (PPAs) with various state governments and DISCOMs.

Major Competitors #

Direct Competitors in India and Globally:

• Tata Power
• NTPC Limited
• Reliance Power
• JSW Energy

How they differentiate from competitors:

• Scale of Operations: Focus on developing large-scale power plants.
• Fuel Security: Integrated supply chain for fuel.
• Technological Advancements: Adoption of supercritical technologies.

Industry challenges and opportunities:

• Challenges: Fluctuating fuel prices, regulatory hurdles, environmental concerns, and financing constraints.
• Opportunities: Growing demand for electricity in India, government initiatives to promote power sector development, and increasing focus on renewable energy.

Future Outlook #

Expansion plans or growth strategy:

• Increasing power generation capacity through greenfield projects and acquisitions.
• Expanding into renewable energy.

Sustainability initiatives or ESG commitments:

• Investment in renewable energy sources.
• Implementation of technologies for reducing emissions and water consumption.
• Focus on corporate social responsibility initiatives.

Industry trends affecting their business:

• Increasing adoption of renewable energy.
• Grid modernization and smart grid technologies.
• Growing demand for energy storage solutions.

Long-term vision and strategic goals:

• To become a leading integrated power company in India and the world.
• To contribute to India’s energy security and sustainable development.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: FY24: ₹60,281 crore, FY23: ₹43,041 crore, FY22: ₹31,686 crore. Demonstrates consistent growth.
• EBITDA: FY24: ₹28,111 crore, FY23: ₹14,312 crore, FY22: ₹13,789 crore. Significant increase in FY24, majorly, due to one-time prior period revenue recognition.
• Profit After Tax (PAT): FY24: ₹20,829 crore, FY23: ₹10,727 crore, FY22: ₹4,912 crore. Notable upward trend.
• Net Debt to Equity Ratio: FY24: 0.62x, FY23: 1.09x, FY22: 2.5x. Shows continuous deleveraging.
• Plant Load Factor (PLF): FY24: 64.7%, FY23: 47.9%, FY22: 52%. Improvement in FY24.
• Sales Volume: FY24: 79.3 billion units; FY23:53.4 billion units, FY22: 52.1 billion units.
• Fixed Assets Coverage Ratio: FY24: 2.41, FY23:1.63, FY22:1.39.
• ROE: FY24:48%, FY23:36%, FY22: Not provided, shows increase profitability.

Business Segment Performance #

• Power Generation and related activities: Revenue increased, and profitability was impacted by one-time prior period revenue recognition.
• Trading, Investment, and other activities: Showed lower revenue compared to Power Generation, with a further decrease in FY24.

Major Strategic Initiatives and their Progress #

• Commissioning of Godda Ultra-supercritical thermal power plant: Successfully commissioned, adding 1,600 MW capacity.
• Acquisition and Turnaround of Assets: Successfully turned around the Mahan Energen Plant.
• Organic and Inorganic Capacity Expansion: Ongoing, with 1,600 MW under construction and plans for 4,800 MW brownfield capacity.
• Inorganic Expansion: 4,220 MW of targeted inorganic acquisitions.
• Digital Transformation (Project Beacon): Ongoing, with an Analytics Center of Excellence (ACoE) established at Tiroda and Kawai plants, executing 125+ improvement projects.
• Green Ammonia Combustion Pilot Project: In progress at Mundra power plant, in collaboration with Japanese firms.
• Cross Border Adjustment Mechanism’: Anticipated from mercantile power demand from various industries and consumers.

Risk Landscape Changes #

• Regulatory Risk: Favorable Supreme Court judgments have reduced regulatory uncertainty, upholding the Company’s claims.
• Commodity Price Risk: Fluctuations in imported coal prices and domestic coal shortages are being managed through contracts and diversification of sourcing.
• Reputation Risk: Addressed through proactive stakeholder communication.
• Cybersecurity and Data Privacy: These have been identified as emerging risks, with ongoing system strengthening.
• Climate Risk: Identified as transitional and physical risk with mitigations strategies.

ESG Initiatives and Metrics #

• Environmental: 72% of current capacity utilizes supercritical/ultra-supercritical technology; FGD installed in 31% capacity, targeting 100% by FY28-29. Water intensity at 2.25 m3/MWh, below statutory limits. Ash utilization at 89.42%.
• Social: CSR activities benefited over 2.3 million lives, focusing on education, healthcare, sustainable livelihoods, and community infrastructure.
• Governance: ESG performance outperforming global peers.
• Emission: GHG emission recorded 0.85 tCO2e/MWh, with 9,51,926 tree planted.
• Single-Use Plastic Free: 7 out of 9 operating locations certified.

Management Outlook #

• The management expects continued growth in power demand, driven by India’s economic expansion.
• Focus on adding base load power capacity and integrating cleaner technologies.
• Plans for organic and inorganic capacity expansion, aiming for 24,270 MW total capacity.
• Emphasis on improving operating efficiencies, leveraging digitalization, and analytics.
• Commitment to decarbonization and environmental stewardship.

Comparative Analysis with Industry Averages #

• Adani Power is the largest private sector thermal power producer in India, with a significant share in coal/lignite-based generation capacity.
• The Company’s financial performance is being compared to peer groups in terms of EBITDA, PAT, and leverage ratios.
• The PLF of 64.7% is performing better, with 90% commercial availability.

Detailed Analysis #

Adani Power Limited: Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Goal: Expand power generation capacity to 24,270 MW, including organic and inorganic additions.
• Progress: Increased operational capacity by 11.7% to 15,250 MW in FY2023-24. Commissioned 1,600 MW Godda Ultra-supercritical thermal power plant.
• Progress: Revenue from operations and EBITDA for FY 2023-24 was higher over the previous year primarily due to higher volume.

Competitive Advantages and Market Positioning #

• Advantage: Operates India’s largest private single-location coal-based power project (Mundra power plant).
• Advantage: 98% of domestic coal-based open capacity is strategically located near mine pitheads, providing a low logistics cost advantage.
• Advantage: 74% of capacity has fuel cost recovery assurance, protecting against fuel cost surges.
• Advantage: In-house mine-to-plant logistics capabilities.
• Market Positioning: India’s largest private thermal power producer, accounting for 18.1% (private) and 6.3% (aggregate) of India’s coal + lignite generation capacities.

Innovation Initiatives and R&D Effectiveness #

• Initiatives: Implemented Project Beacon for data and analytics integration, establishing Analytics Centre of Excellence (ACoE) at Tiroda and Kawai plants.
• Initiatives: Undertook Project Drishti (APM) for implementing AI/ML Predictive & Performance Analytics.
• Initiatives: Partnered with IHI and Kowa-Japan for a green ammonia combustion pilot project.
• R&D Spend: 1.1 crore spent on R&D; 27 crore spent on various cloud, digital transformation and automation initiatives.

M&A Strategy and Execution #

• Strategy: Capacity expansion through inorganic route, focusing on acquiring and turning around stressed assets.
• Execution: Successfully turned around four acquired assets - Udupi, Raipur, Raigarh plants, and Mahan Energen Ltd.
• Execution: Committee of Creditors (COC) approved the Resolution Plan by APL to acquire Lanco Amarkantak Power Limited (LAPL).
• Execution: Resolution plan was also submited with a consortium of which, APL has received Letter of Intent.
• Execution Divestment of its 100% investment in its two owned subsidiaries.

Management’s Track Record in Execution #

• Commissioned the 1,600 MW Godda Ultra-supercritical power plant within 42 months despite logistical challenges and the COVID-19 pandemic.
• Successfully turned around the acquired Udupi, Raipur, Raigarh, and Mahan Energen plants, increasing their power generation to 22.94 BUs, a 29% share in total generation.

Capital Allocation Strategy #

• Prioritized deleveraging: Utilized cash flows from operations and regulatory recoveries to reduce debt and improve credit rating.
• Reduced net external debt to equity ratio from 1.09x in FY 2022-23 to 0.62x in FY 2023-24.
• Allocated capital for organic and inorganic capacity expansion, aiming for a total of 24,270 MW.

Organizational Changes and Their Impact #

• Established Analytics Center of Excellence (ACoE) department at Tiroda and Kawai plants with a central leadership team.
• Implemented Project Beacon to integrate data and analytics, assemble a 41-member team, and foster continuous improvement.
• No significant changes in workforce structure were reported, with employee numbers increasing slightly from 3,155 in FY 2022-23 to 3,315 in FY 2023-24.

ESG Framework #

Environmental Metrics and Targets #

• GHG Emissions: APL recorded 0.85 tCO2e/MWh of GHG emissions in FY 2023-24.
• Water Intensity: Water intensity performance was 2.25 m3/MWh, 35% lower than the statutory limit for hinterland plants and 7.6% lower than the internal target.
• Fly Ash Utilization rate of 89.42% achieved
• Renewable Energy: 72% of current capacity utilizes supercritical/ultra-supercritical units. A target of 78% ultra-supercritical / supercritical capacity is set by FY 2028-29 (excluding fresh acquisitions).
• Emission Reduction: Flue Gas Desulphuriser (FGD) installed in 31% capacity, with 100% of operating and upcoming capacities targeted to have FGD by 2028-29.
• Tree Plantation: 9,51,926 trees planted, representing 12% of the total plantation pledge of 7.85 million by 2030.
• 7 out of 9 power plants are Single Use plastic free certified.
• No net loss of biodiversity by 2025.

Social Responsibility Programs #

• Healthcare: 8,21,125 people benefited from healthcare programs.
• Community Infrastructure: 2,12,515 people benefited from community infrastructure development.
• Education: 10,62,566 students benefited from education initiatives.
• Livelihood: 2,22,376 people benefited from sustainable livelihood programs.
• CSR Reach: CSR activities benefited 2.3 million lives, across 33 districts, and three aspirational districts (Baran, Godda, Singrauli).
• Skill Development: Adani Saksham (skill development) empowered 169,000 young individuals.
• Agricultural Support: Agricultural programs revitalized 26,000 acres of land.
• Health Outreach: Health outreach programs reached 2 million lives.

Governance Structure and Effectiveness #

• Board Composition: The Board consists of 6 Directors: 33.3% Non-Executive Promoter Directors, 16.7% Executive Director, and 50.0% Non-Executive Independent Directors (as of May 1, 2024).
• Board Diversity: Two women directors are on the board, representing 33.33% of the board seats.
• Board Committees: The Board has constituted various statutory and governance committees, including Audit, Stakeholders Relationship, Nomination and Remuneration, Corporate Social Responsibility, Risk Management, Corporate Responsibility, Information Technology & Data Security and various other sub-committees.
• Code of Conduct: A Code of Conduct is in place for all Board members and senior management personnel.
• Whistleblower Policy: A Whistleblower Policy is established to report concerns about unethical behavior.
• No instance of corruption, bribery or anti-competitive behavior has been reported.

Sustainability Investments and ROI #

• Technology Upgrades: Investment in ultra-supercritical/supercritical units (72% of current capacity, targeting 78% by FY 2028-29) for higher efficiency and lower emissions.
• Investment in FGD installation will help in reduction of SOx emission.
• R&D Investments: ’ 1.1 crore spent on R&D, including exploring efficient alternatives and plant modernization.
• ’ 27 crore spent on various cloud, digital transformation and automation initiatives.
• Green Ammonia Pilot: Collaboration with Japanese firms on a green ammonia combustion pilot project at the Mundra power plant.
• Water Conservation: Investments in Zero Liquid Discharge (ZLD) solutions across all units.

ESG Ratings and Peer Comparison #

• S&P Global CSA: Score of 48/100.
• FTSE ESG Rating: 3.5/5.
• CSRHub ESG Rating: 88% score.
• Constituent Company: Included in the FTSE4Good Index Series.
• Outperformed the Global peer group average.

Regulatory Compliance and Future Preparations #

• Adherence to all relevant regulations, including power supply under a 25-year PPA with the Bangladesh Power Development Board.
• All the power plants have valid consent to operate from the concerned regulatory authorities.
• Compliance with Environmental Regulations: Adherence to statutory limits for specific water consumption and investment in emission control technologies.
• Future-Proofing: Investments in ultra-supercritical technology, FGD installations, and exploration of green ammonia co-firing to align with evolving environmental regulations.
• Regulatory Recoveries: Resolution of regulatory issues has led to improved cash flows and better recovery of dues.
• Compliance Management: A robust IT-enabled compliance management system is in place.

Segment-Wise Financial Analysis: Adani Power Limited #

Power Generation and Related Activities #

Management Guidance and Assumptions #

• Management expects continued profitable growth, leveraging a balanced mix of long-term PPAs and merchant capacities.
• Resolution of regulatory issues is assumed to provide clarity and stability.
• Management expects continued strong cash flow predictability, with 85% of capacity tied to PPAs and 79% having fuel cost recovery assurance.
• Emphasis on ultra-supercritical/supercritical power plants for improved efficiency and the installation of emission control systems.

Market Growth Forecasts #

• Central Electricity Authority forecasts India’s energy requirement to reach 1,736 BUs in FY 2024-25 with a peak demand of 260 GW, and 2,474 BU with a peak demand of 366 GW by 2031-32.
• Electricity demand is projected to grow to 1,907.84 Billion Units (BU) in FY 2026-27 and 2,279.64 BU in FY 2029-30.
• CEA projects total installed capacity to grow to 777 GW by FY 2029-30, with thermal power at 32.39%.

Planned Strategic Initiatives #

• Organic capacity addition of 4,800 MW of brownfield capacity and planned inorganic acquisitions.
• Focus on transitioning to more efficient thermal technologies (ultra-supercritical/supercritical units).
• Installation of flue gas desulphurisers (FGD) across the entire capacity by 2028-29.
• Pilots for non-fossil fuel substitutes like biomass and green ammonia.
  • Implementation of project Beacon for data analytics, and project Drishti for Asset Performance.

Capital Expenditure Plans #

• Planned organic and inorganic capacity additions over next few years.
• Ongoing construction of the 1,600 MW Mahan Phase II Ultra-supercritical power project.
• Development work initiated for a 1,600 MW USCTPP brownfield expansion of the Raigarh power plant.
• Specific Capex incurred for improvement in safety, reliability, equipment availability, and operational efficiency across various plants (Mundra, Tiroda, Kawai, Udupi, Raipur, Raigarh and Mahan).
  • Capex of Raigarh: INR 19 Crore
    • Expected Break-Even: 3-4 Years.
  • Capex of Raipur: INR 32 Crore
    • Expected Break-Even: 3-4 Years
  • Capex of Udupi: INR 23 Crore.
  • Capex of Kawai: INR 20 Crore
    • Expected Break-Even: 3-4 Years.
  • Capex of Tiroda: INR 76 Crore
    • Expected Break-Even: 3-4 Years.
  • Capex of Mundra: INR 40 Crore
    • Expected Break-Even: 3-4 Years
  • Capex of Godda: INR 24 Crore
    • Expected Break-Even: 3-4 Years
  • Capex of Mahan: INR 89 Crore

Efficiency Improvement Targets #

• Transitioning to efficient technologies, enhancing FGD coverage.
• Targeting 78% ultra-supercritical/supercritical capacity by FY 2028-29 (excluding fresh acquisitions).
• 100% of operating and upcoming capacities to have FGD.
• Continue to achieve a commercial availability under LT PPAs of 90%.

Potential Challenges and Opportunities #

• Challenges: Regulatory and legal risks in obtaining approvals for M&A and expansion. Integration and execution risks related to acquisitions and expansions. Market and competitive risks related to pricing, demand and shifting preferences. Air pollution, water scarcity and other environmental risk.
• Opportunities: Expanding capabilities to meet the nation’s energy needs. Acquisitions of promising assets. Fulfilling base load and peak power demand by enabling greater grid penetration with reliable power supply. High degree of fuel security.

Scenario Analysis and Sensitivity #

• Scenario: Fluctuation in imported coal prices.
  • Sensitivity: A sharp increase in imported coal prices could affect production levels and margins, but 77% capacity have fuel cost recovery mechanism.
• Scenario: Delays or unfavorable outcomes in regulatory/judicial proceedings.
  • Sensitivity: Could lead to financial losses and reputational damage. Mitigation includes strong legal representation and enforcement of contractual terms.
• Scenario: Changes in coal prices, taxes, subsidies, or regulations.
  • Sensitivity: Could affect fuel costs and carbon footprint, but is mitigated by a focus on domestic coal linkages and fuel cost recovery mechanisms.

Trading, Investment, and Other Activities #

Management Guidance and Assumptions #

• This segment appears to support the core power generation business.
• Focus is placed on leveraging expertise in fuel management and logistics.

Market Growth Forecasts #

• Indirectly linked to the overall growth in power demand and the need for efficient fuel sourcing.

Planned Strategic Initiatives #

• Developing/acquiring land.
• Continued support for the power generation segment, particularly in fuel management and logistics.

Capital Expenditure Plans #

• Limited specific information provided in the document.
• Capital expenditures could align with land development and supporting infrastructure.

Efficiency Improvement Targets #

• Focus on optimizing fuel management and logistics, including rail logistics and coal storage management.

Potential Challenges and Opportunities #

• Challenges: Volatility in commodity prices (coal). Dependence on the performance of the power generation segment.
• Opportunities: Synergies with the core power generation business. Potential for growth through expansion into related activities.

Scenario Analysis and Sensitivity #

• Scenario: Significant changes in domestic vs. imported coal mix.
  • Sensitivity: Impacts fuel sourcing costs and logistics requirements, but is mitigated by a focus on de-risking fuel supply.
• Scenario: Disruptions in the coal supply chain.
  • Sensitivity: Addressed through a dedicated fuel management function and a captive fleet for coal transportation.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Qualified Opinion: The Independent Auditor’s Report contains a qualified opinion.
• Basis for qualification: Pending adjudications/outcome of investigations by the Securities and Exchange Board of India (SEBI) prevent the auditors from commenting on the possible consequential effects on the standalone and consolidated financial statements.

Key Accounting Policies and Changes #

• Consistent Application: The Company prepares its financial statements in accordance with Indian Accounting Standards (Ind AS).
• No major change: There were no major changes in accounting policies.
• Revenue Recognition: Includes judgements in the estimation of the amounts of change in law claims and their recoverability.

Internal Control Effectiveness #

• Adequate Internal Financial Controls: The auditor’s report states that, in their opinion, the Company has, in all material respects, adequate internal financial controls over financial reporting and that such controls were operating effectively as of March 31, 2024.
• Audit Trail Feature Issue: A deficiency was identified where the audit trail feature was not enabled for certain direct changes to data when using certain privileged access rights.

Regulatory Compliance Status #

• General Compliance: The Company has generally complied with the provisions of the Companies Act, 2013, SEBI Regulations, and Secretarial Standards.
• Exception for Board composition: There was a temporary non-compliance with Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, related to the constitution of the Board of Directors between March 30, 2024, and May 1, 2024. It was Regularised w.e.f May 1, 2024.
• SEBI Investigations: SEBI investigations are ongoing, related to allegations made in a short seller report. The Company maintains compliance with applicable laws and regulations.

Legal Proceedings and Potential Impact #

• Pending Adjudications/Investigations: Pending adjudications/outcome of investigations by the Securities and Exchange Board of India.

Related Party Transactions #

• Material Transactions: Material related party transactions were entered into during the year, and these were stated to be on an arm’s length basis and in the ordinary course of business.
• Disclosure: Related party transactions and balances are disclosed in Note 64 and 69 of the consolidated and Standalone financial statements.
• Loan and Guarantees: The Company has not granted loans, advances in nature of loans, guarantees or security.

Subsequent Events #

• No Significant Adjusting Events: Management evaluation found no significant adjusting events occurred subsequent to the balance sheet date that were not disclosed/given effect in the financial statements, except as disclosed.
• Title deeds transferred: All titles pertaining to land (Leasehold and Freehold) and building for Kawai TPP has been transferred in name of Company.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The qualified audit opinion and the identified deficiency in internal controls regarding the audit trail feature, and recognition of claims are points of concern. The ongoing SEBI investigations, although the management believes them to be without merit, pose an element of uncertainty.
• Regulatory Risk: Regulatory risk is present due to the pending SEBI investigations and show cause notices. The risk is moderate, given the Company’s and management’s assertions of compliance and the ongoing legal processes.