Power - Generation 134GW by FY15E, rising competition; Adani to C-Buy, JSW to Sell :: Goldman Sachs

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India: Utilities: Power - Generation
134GW by FY15E, rising competition; Adani to C-Buy, JSW to Sell
High visibility of execution; 14% supply growth CAGR in FY10-15E
Our bottom-up analysis of timelines for projects under construction gives us
confidence that supply growth will exceed historical trend growth primarily
due to: 1) 11th Plan projects coming to fruition in FY13E; 2) 57% of capacity
addition from private sector; 3) faster delivery of equipment (38% from
China); 4) significant achievement of key milestones for 12th Plan projects.


Demand growth is more seasonal; utilization levels at risk in FY14E
With industrial consumption growth likely to track GDP growth and supply to
the agricultural segment remaining restricted, we believe the residential
segment will drive power consumption growth. As residential demand is
seasonal and price elastic, we believe the 14% base load supply growth may
not be entirely consumed and utilization levels may be at risk in FY14E.


Short-term rates at Rs4 for FY12E; competition to increase
With deficits persisting till FY12E, we expect short-term rates to hover around
Rs4/unit in FY12E and then trend down to PPA rates. In our view, the
merchant business model for developers which are not integrated in terms of
fuel supplies may become incrementally risky, and consequently we expect
them to enter into long-term PPAs. With more than 20GW of capacity not tied
to PPAs and current PPA rates reflecting high fuel cost expectations, we
believe competition in this segment will drive down PPA rates, particularly
with those state-owned utilities that are in better financial condition.


Coal availability not an issue; rationing of linkage coal likely
We believe the government will continue to ration linkage coal to support
generation growth, and that imported coal will be used till overall blending
reaches 20%. In our view, arrangements for: 1) configuration of boilers and
2) ramping up ports and inland logistics are already underway; and 3) a
higher imported fuel component is beginning to reflect in PPAs.


Add APL, RPWR to CL; JSWE down to Sell; Lanco, NHPC to Neutral
We add Adani Power (APL) to our Conv. Buy list as we believe it is best
positioned to withstand competition. We lower JSWE to Sell and Lanco to
Neutral as they are highly leveraged to merchant prices and competition. We
upgrade NHPC to Neutral on valuation and add RPOL to our Conviction Sell
list on funding constraints. We revise our FY11E-FY13E EPS by +75%/-36%
and 12-m TPs by -22% to +15% for India utilities stocks under our coverage.