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Power -ƒ Capacity addition of coverage universe – a mixed bag
During the quarter, NTPC added ~500 MW (standalone) of capacity
and Lanco Infratech added 600 MW of capacity while NHPC and
Neyveli Lignite reported no capacity addition. We expect NTPC and
Lanco to add not more than 1500 MW and 1200 MW of capacities in
Q4FY11.
The government has revised the Eleventh Five Year target of
capacity addition from 62,000 MW to 58,000 MW. We believe that
with best efforts ~48,000 MW is expected to be achieved till the end
of the Eleventh Plan. For 8MFY11, capacity addition was 7059 MW
against the target of 12,444 MW (achievement of 56%). During
October and November, there was capacity addition of 2,104 MW
against targeted 2404 MW (achievement of 88%).
ƒ Merchant power rates remain weak due to seasonality
Merchant power rates have remained weak due to the low electricity
consumption in winter. We expect companies with merchant power
exposure (Lanco Infratech) to report a realisation between ~| 4-4.2
Kwh. On the IEX, merchant power rates fell as low as | 2/Kwh in this
quarter. We expect merchant power rates to stabilise to ~| 4/Kwh in
Q4FY11.
ƒ Increase in coal prices – a headwind…
During Q3FY11, international thermal coal prices (6700 kcal) have
increased by 27% from $96/tonne to $122/tonne. We expect
companies importing coal (NTPC, Lanco Infratech) to report slightly
higher fuel expenses. However, increase in coal prices will impact
the margins in Q4FY11.
ƒ …have resulted in purchase of coal asset by utility majors
During the quarter, Lanco acquired Griffin Coal for ~AU$750 million
and JSW Energy acquired CIC Energy for ~ CA$ 422 million. Apart
from increase in thermal coal prices, fuel security was the major
reason for acquisition. NTPC though its JV (ICVL) is scouting for coal
assets abroad.
ƒ PAT, EBITDA to show mixed trend
For our coverage universe, we expect EBITDA margins to increase
by ~ 400 bps YoY on account of higher generation by hydro utilities
(NHPC, JPVL) and slight increase in generation of thermal utilities
(NTPC, Lanco). We expect PAT to remain flat on account of higher
depreciation and interest cost.
NTPC NTPC has sold ~54.72 BU in Q3FY11E, reporting an increase of 1% YoY. We expect
realisation to be ~ | 2.45 per unit. During the quarter, the company commissioned
500 MW in Korba of which 65% (325 MW) would be sold at merchant rates
NHPC The company has sold ~ 3267 MUs during the quarter with average realisation of |
4.3 per unit. There was no capacity addition in this quarter. On a YoY basis, on
account of better monsoons, we expect topline and bottomline growth of 20.1% and
8.8%, respectively
Neyveli Lignite The company is expected to report a topline and bottomline de-growth of 27% and
33% YoY, respectively. The company has sold ~3644 MUs, down 4% YoY on
account of excessive rainfall affecting mining operations. We have built in a generic
realisation rate of | 2.42/unit
JP Hydro The company has sold 671 MUs in Q3FY11E with average realisation of | 2.1 per
unit. The company has a current generation capacity of 700 MW of hydropower. We
expect a loss of ~| 37.5 crore on account of higher interest (securitisation of
receivables of 700 MW)
Lanco Infratech Revenues are expected to increase by 47% on account of capacity addition. EBITDA
is expected to increase 47% and PAT to decline by 11% (higher depreciation on
account of change in method from SLM to WDV). We expect EPC revenues to
increase by 40% QoQ and YoY. Merchant realisation is expected to be ~|44.2/Kwh
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