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Utilities
Potential Result Outperformer: Adani Power
Potential Result Underperformers: NTPC, JP Power
In the Utility sector, markets will likely be focused on the extent of fall in merchant
power rates and progress on future plans such as expansion in generation
capacity, update on new IPP projects and AT&C loss reduction in New Delhi JVs
of Reliance and Tata Power.
We expect the Indian Utility Sector, represented by Adani Power (APL), NTPC,
Reliance Infra, Tata Power, Neyveli, GIPCL and JP Power to report (ex-APL)
sales growth of 20%YoY, EBITDA growth of +10%YoY and PAT growth of
10%YoY mainly led by GIPCL, Rel Infra and Tata Power.
The primary reasons for the muted growth despite higher RoE are expected to be
delayed capex hitting generation growth (NTPC), grossing-up of tax at MAT rate
(NTPC) and incremental RoE on additional capacity (GIPCL, NTPC and Neyveli).
Adani Power: We expect APL to report 63%QoQ (152%YoY) growth in
3QFY11 Rec. PAT as it takes full impact of 3rd 330MW and 1 week impact of
4th 330MW unit leading to 32%QoQ growth in generation. APL remains our
top pick.
We expect NTPC’s 3QFY11 to be average despite higher tariffs on the
alignment of regulatory depreciation rates with P&L and higher RoE from the
new regulatory regime. Generation has been weak during Oct-Nov’10 at
3%YoY despite 490MW additional capacity, Fuel cost savings remain on
track in 3Q but the sales from its high margin spot market may slow due to
cap on realization from UI market. On a recurring basis, we expect 9%YoY
growth in NTPC’s 3QFY11 PAT.
Reliance Infra: We expect a good 3Q with 18%YoY growth in sales led by
the impact of new tariff offset by the high cost of power purchased and
60%YoY growth in E&C revenues. We expect 72%YoY EBITDA growth on
past recovery in license area & strong E&C. We expect recurring PAT to be
+25%YoY on lower treasury income on investment in Infra SPVs and higher
interest costs.
Tata Power: We expect Tata Power to witness recurring PAT (Parent)
growth of 41%YoY mainly on full impact of merchant capacity in Mumbai
license area, Haldia merchant sales and higher treasury income.
Neyveli: A ~1% growth in generation during Oct-Nov’10 should hit Neyveli
shares. However, commissioning of 125MW unit at Barsingsar in Jun’10 is
expected to to add incremental RoE.
JP Power had an above average water availability from its snow fed rivers
driving its generation growth at Baspa II 40%YoY and Vishnuprayag
+31%YoY during Oct-Nov’10. Consequently, bottom line should be driven by
incentives from secondary energy at its two HEP. However, we expect a rec.
loss (Parent) of Rs23mn vs rec. PAT of Rs466mn on higher interest cost on
debt taken for equity funding of new SPVs to minimize equity dilution.
Adani Power and Reliance Infra remain our preferred picks in the sector
based on expansion in its generating capacity, distribution franchise and
reduction in T&D losses at its Delhi JVs and are likely to report inspiring 3Q.
Maintain Buy on JP Power, as the stock has yet to factor in improving
execution of its 12GW pipeline and UPF on NTPC on continued delay in
capex & coal mines. Neutral on Tata Power, Neyveli & GIPCL.
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