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Power
For 3QFY2011, we expect power-generating companies in our
universe to report top-line growth of 15.3% yoy, driven by
capacity additions and higher tariffs. However, operating profits
are expected to decline by 12.3% on account of higher fuel
costs. Net profit is expected to fall by 6.5% yoy.
Capacity addition: Status check
Generation
Inordinate delays in the completion of projects have led to the
CEA revising its XIth Plan capacity estimates to 62,488MW, much
below the target of 78,000MW set at the beginning of the plan
period. Capacity addition has generally been delayed due to
execution issues relating to acquiring land and obtaining
environment and other statutory clearances. Capacity addition
till November 2010 from the beginning of the XIth Plan period
stood at 29,361MW, which is just 54% of the capacity targeted
to be achieved during the period.
Transmission lines
During April-November 2010, 5,579 circuit kilometers (ckm)
were added to the 400kV HVDC transmission lines, as against
the targeted 5,563ckm. Total addition to other transmission line
categories stood at 3,979ckm, as against the targeted
2,997ckm.
Transmission sub-stations
During April-November 2010, total addition to the 400kV
substation stood at 8,245MW, which was higher than the
targeted 7,645MW. Addition to the 220kV sub-station category
stood at 7,330MW, as against the targeted 6,220MW.
Operational highlights
During 8MFY2011, power generation in India rose by 4.4%
yoy to 525.5BU (503.3BU). The country's thermal power
generation rose by 3.4% yoy to 426.8BU. The plant load factor
(PLF) of thermal plants for 8MFY2010 stood at 75.7%, which
was 65bp lower than the target of 76.4%. Hydro power
generation increased by 5.8% yoy to 83.3BU, while the amount
of nuclear power generated grew substantially by 29.4% yoy to
15.4BU.
Power-deficit situation
The country continued to face power deficit due to the delay in
the commissioning of new capacities, fuel shortage in existing
plants and deficiencies in the T&D system. India's overall and
peak power-deficit levels during 8MFY2011 stood at 8.9% and
10.2%, respectively, slightly lower than 9.7% and 12.6% reported
in 8MFY2010.
Power deficit highest in the western region
The western region's overall power deficit of 13.4% during
8MFY2011 was the highest amongst all the regions.
Maharashtra had an overall power deficit of 17.4%; peak deficit
in Maharashtra stood at 22.1%. The eastern region had the
lowest power deficit of 4.6%, with peak deficit of 5%.
Coal scenario
Coal
India's coal-based power-generation capacity, which currently
stands at 89,778MW, accounts for ~53% of overall capacity.
The dominance of coal as a power-generation fuel in India is
set to continue with a major portion of the upcoming capacity
being based on coal. The power sector is the leading consumer
of coal in the country, accounting for 75% of India's overall
demand of 534mn tonnes in FY2010. As per our estimates,
India's power sector would require an additional coal supply of
~188mn metric tonnes (MMT) over the next five years.
Coal-based power plants have been facing fuel shortage due
to various reasons such as delay in procuring coal linkages;
issues in obtaining environment clearances and other regulatory
approvals for developing coal blocks; hurdles in expansion of
coal blocks; and logistical and infrastructural issues
As of November 30, 2010, 27 critical thermal power stations
out of the 82 monitored by the CEA have critical coal stocks for
less than seven days.
Global coal prices on the rise
Spot global coal prices were substantially higher on a yoy basis
during the quarter. Average prices of the New Castle Mckloksey
6,700kc coal stood at around US $104/tonne in 3QFY2011,
as against US $77/tonne recorded in 3QFY2010. On a qoq
basis as well, coal prices were higher by 10.6%.
Key corporate developments
NTPC
During the quarter, the Ministry of Power gave NTPC the go
ahead to sell 15% of power outside the long-term PPA with
respect to the 500MW Unit 7 of Korba Super Thermal Power
Project and 500MW unit 6 of Farakka Super Thermal Power
Project. The company will sell the balance to state power utilities
under the long-term PPA. Thus, 150MW of power would be
available for sale on a short-term basis. We believe the
company's profitability would receive a substantial boost if the
government allows sale under the short-term route from its other
existing and upcoming plants as well.
JSW Energy
JSW Energy has agreed to acquire 100% equity stake in CIC
Energy, which has 2.6bn tonnes of coal reserves in Botswana
for a consideration of ~CAD422mn (~US $414.4mn). The offer
price is attractive as it implies an EV of US $0.22/tonne of
mineable reserves. The offer is yet to get regulatory approval
and must be accepted by 66% of shareholders for the deal to
pass through. The deal is expected to close before February
28, 2011. The acquisition of CIC Energy with 2.6bn tonnes of
coal reserves would provide JSW Energy 16-20mtpa of coal
from FY2016.
Reliance Power
Reliance Power has tied up with some Chinese banks for
financing US $1.1bn (~`5,000cr) to import power equipment
for Sasan UMPP in Madhya Pradesh. Banks that have promised
financing include Bank of China, China Development Bank and
The Export-Import Bank of China.
Adani Power
During the quarter, Adani Power completed the synchronisation
of the 330MW fourth unit in Mundra, Kutch. Post the
commissioning of this plant, the company has a total capacity
of 1,320MW. The company would be adding another 660MW
in the remaining portion of FY2011, while another 1,980MW
of capacity would be added in FY2012E.
3QFY2011 expectations
We expect NTPC to witness a 13.4% yoy increase in its top line
to `13,277cr during the quarter, aided by volume growth due
to commencement of new capacities; and higher tariffs.
However, the company's operating profit is expected to decline
by 17.3% yoy to `3,217cr. We estimate NTPC's net profit to dip
by 9.8% yoy to `2,132cr on high depreciation costs.
We expect CESC to register 46.6% yoy growth in its standalone
top line to `1,168cr, aided by higher volumes due to the
commissioning of the 250MW Budge-Budge plant. The
company's OPM is expected to expand by 503bp yoy to 28.6%.
We expect CESC to record 64% yoy growth in net profit to `167cr.
We expect GIPCL to register a 8.0% yoy increase in revenue for
3QFY2011, primarily on account of higher volumes. The higher
volumes are expected due to the commissioning of Unit 3 and
4 in Surat. OPM is expected to expand by 603bp to 31.2%,
while the bottom line is set to increase by 15% yoy to `33.1cr in
3QFY2011.
Industry outlook
We expect capacity addition to gather pace going ahead, with
the XIth Plan period ending in FY2012. However, the
power-deficit scenario is likely to persist, as supply is not likely
to keep up with demand. Thus, players with the ability to execute
projects on time would be benefited by high merchant tariffs
expected to prevail over the next two years. We maintain Buy
on NTPC, GIPCL, PTC and CESC.
Primary market activity
The quarter witnessed two major public offerings from the energy
space from Coal India (CIL) and Power Grid Corporation
(PGCIL).
CIL: IPO
CIL, the world's largest coal producer raised funds through its
initial public offer (IPO) during the quarter. The `15,000cr issue
was subscribed by 15.28 times. We had a Subscribe rating on
the issue based on 1) the huge reserves and production base of
the company; 2) the highly encouraging domestic coal demand
scenario, which is expected to significantly outpace the supply;
and 3) the expected improvement in blended realisations of
CIL due to a) hikes in notified prices of raw coal, b) increased
proportion of beneficated coal in overall sales going ahead
and c) higher e-auction sales volume.
PGCIL: FPO
PGCIL, India's principal electric power transmission company,
raised money through an FPO offer during the quarter. The
`7,600cr issue received a good response from investors and
was subscribed by 14.88 times. We had a Subscribe rating on
the issue based on the expectation of a substantial increase in
the regulated capital of the company post the rev up in the
commissioning of generation projects.
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