Adani Power’s fuel expenses climbed to ₹10,229 crore in the second quarter of fiscal 2027, driven by a 50% spike in imported coal prices. A six-month regulatory lag in passing these costs to consumers in Gujarat projects is weighing on near-term profits. Investors are tracking how this timing gap, alongside domestic coal quality issues, impacts the company’s ability to maintain margins.
Adani Power’s financial performance in the second quarter of fiscal 2027 faced a notable hurdle as rising coal prices put pressure on profit margins. The company reported a significant increase in fuel expenditure, which hit ₹10,229 crore for the quarter, compared to ₹7,216 crore in the same period a year ago. This roughly 50% year-on-year surge in the landed cost of imported coal was the primary driver of the rising expenses.
A key issue for investors is the timing of cost recovery. While the company has contracts that allow it to pass these higher costs on to power distribution companies, the regulatory indexation mechanisms governing its Gujarat-based projects create a delay of over six months. This means the immediate impact of the price spike cannot be fully offset in the current quarter's electricity tariffs, leading to a temporary squeeze on profitability. CEO S B Khyalia noted that while per-unit earnings at the Gujarat facility remain above actual procurement costs, the delay in tariff adjustments is a drag on current financial performance.
The company’s operations also highlighted a difference between its various power contracts. The 1,600-MW Godda plant in Jharkhand, which supplies electricity to Bangladesh, operates under a different framework. This contract is directly linked to international fuel benchmarks, allowing for immediate billing adjustments when global fuel prices fluctuate. This structure acts as a buffer, preventing the same recovery delays that the company faces in its domestic regulated projects.
Beyond imported fuel, the company also dealt with operational inefficiencies involving domestic coal. Despite steady notified prices from suppliers like Coal India, the effective cost of domestic coal rose during the September quarter. Heavy monsoon rains increased the moisture content in the coal, lowering its calorific value—a measure of how much energy the coal produces. To maintain power generation levels, the company had to consume more coal per unit of electricity, increasing overall costs. Unlike the imported coal provisions, these inefficiencies linked to domestic supply are generally not recoverable through automatic tariff revisions, adding another layer of complexity to the company’s cost management.
For investors, the immediate monitorable will be the progression of fuel costs and the timeline for tariff adjustments in the upcoming quarters. While the company has mechanisms to recover costs, the lag effect remains a point of focus. The ability to manage domestic coal efficiency and navigate the timing of these regulatory pass-throughs will be essential for stabilizing profit margins in the near term.