Adani Power now seems to be looking inwards to work out a solution for its troubled Mundra-based 4,620 MW Ultra Mega Power Project (UMPP). The options were getting narrower after the Supreme Court set aside an earlier tribunal ruling that allowed Adani Power to charge compensatory tariff from consumers.
Due to the adverse court ruling, the company took a write-off of Rs 4,360 crore in Q4FY17 leading to a loss of Rs 4,960 crore. While the Mundra project has already lost the equity (due to accumulated losses) it is now casting its shadow on other good assets.
To put it in perspective, because of the write-off, its consolidated net worth has fallen from about Rs 7,400 crore in FY16 to Rs 2300 crore in FY17.
While consolidated gross borrowings have remained more or less at the same level of Rs 55,000 crore, debt-to-equity jumped to 18.5 times in FY17 with an interest coverage ratio of around one-time.
A possible corollary of this would have been the company’s inability to borrow and fund existing and future projects. Moreover, as the credit profile weakens, the cost of borrowing shoots up. Inability to raise funds, higher cost of borrowings, pressure on cash flows and profitability could actually worsen financials at the consolidated level.