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Power Utilities: Key drivers in 2011
Falling merchant rates: fallen from Rs 5.5 in Q1FY11 to Rs 4.3 currently
The recent past has seen seasonal factors such as bountiful monsoons followed by cold winters leading to the current rate at Rs
4.3. We estimate the avg FY11 rate at Rs 4.7 vs. our earlier Rs 5.0
The greater worry seems to be some SEBs being disallowed the desired increases in end-consumer level tariffs due to the current
inflationary environment. As a result, those SEBs have announced a capping of merchant purchases, e.g., Karnataka at Rs 4. Hence,
we have lowered our merchant assumptions for FY 12 & 13 to Rs 4.5 & 4 resp. from Rs 5
From FY14, expect merchant to stabilize at Rs 4, as the rising cost structures (capital and fuel) would inflate marginal cost for
merchant to be at that rate
Rising coal prices: Internationally coal has zoomed to USD 120/MT and CIL also to raise its prices by 11%
Internationally, coal have zoomed to USD 120/t and for FY12 our assumption needs to be adj to USD120 vs. 105
CIL has announced to raise prices by 11% in FY12 and has also lowered its production ests for FY12 from 486 MMT to 447
From FY12 onwards, the ~13GW p.a. additions (based on CIL coal supplies) requires ~60 MMT vs. corresponding availability at
~30MMT. The bal. will have to be bridged from spot mkt resulting in blended coal from Rs 1,300/MT to Rs 1,900 for FY13
Execution on track for private players, but lagging behind for PSUs
Expect capacity to increase by ~20 GW in FY12 & 13, primarily driven by private sector contributing 12-13 GW. The increase in
capacity is unlikely to alter the demand-supply economics as current deficit is 18 GW while demand increase is 15 GW
Valuations captures potential negatives; time to accumulate
On the back of rapid execution build-out over FY11-13, we believe risk-reward is now favorable for JPVL, Adani, PGCIL, & Tata Power
and unfavorable for NTPC. For JSW, re-rating hinges on the clarity on commencement of construction for captive coal mine based
~3 GW
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