The recent ruling by the state power regulator may have an adverse impact on income.

The Gujarat Electricity Regulatory Commission (GERC) has ruled in favour of the state power distribution company, Gujarat Urja Vikas Nigam, and directed Adani Power to honour its power purchase agreement (PPA) to supply 1,000 Mw at Rs 2.35 per unit for the next 25 years.

Also Read   Related Stories News Now - Adani Power shares fall 3.5% after Gujarat regulator ruling - Adani Power cannot terminate PPA with GUVNL: GERC - Mundra Port begins ops at Gujarat terminal - Adani's gameplan for the big league - Adani Power to augment capacity to 16,000 MW by 2014 - Adani Power to expand capacity to 16,000 MW by 2014

Also Read   Related Stories News Now - Wall Street edges up as Greek deal awaited - FII-TO-FII: Grasim Ind traded at 5% premium - Sovereign debt sustainability a political issue: Subbarao - Airlines approach RIL to handle ATF services on their behalf - Coke posts 20% volume growth in India in Q4 More

According to analysts, Adani Power leveraged the cheap landed coal available from its parent, Adani Enterprises. The commitment was to supply coal with an average gross calorific value of 5,200 kcal/kg for the next 15 years at $36 a tonne. However, the coal received was of lower calorific value and had to be blended with the South African coal. Subsequently, the cost went up to $70 a tonne. This affected expenditure figures in the first quarter of the current financial year.

However, the merchant power rate of around Rs 6.75 per unit was much higher than the Rs 4.5 per unit estimated by industry watchers. This saved the day for Adani Power, despite a not-so-impressive plant load factor. With merchant power rates expected to remain soft over the next three years (barring intermittent spikes), the company will have to start looking at increasing volume, which it can as it has around 5.15 Gw projects under construction.

At the moment, there is a lot of optimism on the management’s ability to execute projects at a fast clip using Chinese technology and labour. But, even this could come under a cloud. Analysts estimate that a 0.5 per cent decrease in rates drag earnings per share (EPS) by 10 per cent, while a 10 per cent rise in coal costs erodes EPS by 14 per cent. Given this, a 5-10 per cent earnings downgrade is being reworked by analysts. They are also not ruling out its impact on Adani Enterprises, which owns 70 per cent in Adani Power.

New Ipad Application :Business Standard's all new IPad App Click here to download for free Other Stories      - Wall Street edges up as Greek deal awaited - FII-TO-FII: Grasim Ind traded at 5% premium - Sovereign debt sustainability a political issue: Subbarao - Airlines approach RIL to handle ATF services on their behalf - Coke posts 20% volume growth in India in Q4

Tags : Adani Power | Gujarat Electricity Regulatory Commission | Gujarat Urja Vikas Nigam | power purchase agreement | Adani Enterprises |   Read Business news in  Advertisements -  IndianOil Citibank Card at Zero annual card fee -  Earn fuel worth Rs.2400 with Citi -  Now property search gets more exciting than ever before! -  Office 365 for professionals and small businesses. -  Be part of it The World's Largest Aircraft. -  Only Developer to give a guarantee on time space & rate. -  Financial Learning now made easier and more convenient. -  Buy Your Property with Our Triple Guarantee in India. -  Improve Patient Care & Experience. Click here to know more -  Are You Serious About Your Future? Click here to know more -   Introduce a New Automotive Luxury Car.. know more -  Making lives better through Social Innovation Business..