anish

Originally Posted by anish

 There has been concern over the imposition of 16% excise duty on spot power sales but the government has now revised the export duty on the export of power outside an SEZ from 16% of sales to a flat rate of Rs.0.10 per kWh.

 This means that for Adani’s 4.6GW Mundra project, the risk of a 16% export duty on spot power sales has been removed.

 As per the revised rate, the duty incidence would be 3%, assuming spot power sales at the rate of Rs.3.5 per kWh.

 It is not clear whether the duty will be applied with retrospective effect or going forward. However, the duty revision would boost sentiments on the stock and may remove the overhang.

 In the earlier report, it was assumed that Adani would be giving up its SEZ status because of 16% export duty and would be paying MAT at 20% instead of paying export duty. Accordingly, a 20% MAT was assumed for FY11 and FY12.

 In the changed scenario, the company would be retaining its SEZ status as the export duty has declined to just 3% and it would be enjoying the tax incentives for FY11 and FY12.

 Even if the company has to pay 20% MAT in FY11 and FY12 in addition to the 5% customs duty on coal imports, the downside on EPS seems limited. In such an event, projected EPS for FY11 would fall only by 1.5% and by 3.4% for FY12. It is unlikely to have a major impact on the target price of Rs.160.