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Merchant prices to move up given impending elections, improving seasonal demand
● Bilateral merchant tariffs fell 16% QoQ during 2Q FY11 and by
another 15% QoQ during 3Q FY11, mainly on: (1) higher
generation from hydro projects led by better-than-expected
monsoon during CY10, (2) weak SEB finances restricting their
ability to pay high merchant tariffs and (3) weaker-than-expected
seasonal demand.
● However, our interactions with power traders suggest merchant
tariffs have started to increase sequentially for contracts with
deliveries in Mar-May 2011. UI rates are also improving.
● The upcoming elections in Tamil Nadu, Pondicherry, West Bengal
and Kerala, likely during April 2011, and improvement in power
demand expected due to agriculture and summer season during
1Q FY12, are key reasons for an uptick in merchant tariffs.
● Traders believe bilateral merchant tariffs are expected to rise to
about Rs4.5/kWh in 4Q FY11 (from Rs4.1/kWh in 3Q FY11) and
further to about Rs5/kWh in 1Q FY12.
● While we continue to highlight structural issues, such as domestic
coal deficits and weak SEB financials, which are likely to impact
the sector in the medium term, we believe stocks such as Adani
Power, JSPL, KSK and Lanco with high merchant power exposure
are likely to benefit from rising merchant tariffs in the near term.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Merchant prices to move up given impending elections, improving seasonal demand
● Bilateral merchant tariffs fell 16% QoQ during 2Q FY11 and by
another 15% QoQ during 3Q FY11, mainly on: (1) higher
generation from hydro projects led by better-than-expected
monsoon during CY10, (2) weak SEB finances restricting their
ability to pay high merchant tariffs and (3) weaker-than-expected
seasonal demand.
● However, our interactions with power traders suggest merchant
tariffs have started to increase sequentially for contracts with
deliveries in Mar-May 2011. UI rates are also improving.
● The upcoming elections in Tamil Nadu, Pondicherry, West Bengal
and Kerala, likely during April 2011, and improvement in power
demand expected due to agriculture and summer season during
1Q FY12, are key reasons for an uptick in merchant tariffs.
● Traders believe bilateral merchant tariffs are expected to rise to
about Rs4.5/kWh in 4Q FY11 (from Rs4.1/kWh in 3Q FY11) and
further to about Rs5/kWh in 1Q FY12.
● While we continue to highlight structural issues, such as domestic
coal deficits and weak SEB financials, which are likely to impact
the sector in the medium term, we believe stocks such as Adani
Power, JSPL, KSK and Lanco with high merchant power exposure
are likely to benefit from rising merchant tariffs in the near term.
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