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Utilities
• Power capacity additions picked up in Oct 2010 (2085 MW added) but slowed down during Nov 2010 (39 MW added).
Achievement in capacity addition for the period Apr‐Nov 2010 stands at 7059 MW which is only 33% of targetted
capacity addition of 21441MW set for FY2011
• All India generation grew by 5% yoy during Apr‐Nov 2010 led by 3% growth in thermal, 29% in nuclear and 8% growth
in Hydro. However, All India PLF declined to 72.4% for the same period, lower by 300 bps veRs.es same period last
year. Month‐wise analysis of PLF also shows a dip at All India level with Oct 2010 PLF at 74.8%, verses flat previous year
and Nov 2010 PLF at 72.1% verses 75.5% yoy
• Merchant Power rates (1 day forward) declined sharply to Rs. 2.2 during Q3FY11 verses Rs. 3.4 (Q3FY10), and Rs. 3.1
(Q2FY11)
Key Developments during the quarter
• NTPC commissioned 500MW capacity at Korba Thermal Power station p y during Q3FY11. The installed capacity of
NTPC group has become 33,194 MW
• During the quarter, Ministry of Power allowed 15% of power to be sold outside long term PPA (Power Purchase
Agreement) in respect of each of Unit VI of 500 MW of Farakka Super Thermal Power Project and Unit VII of 500MW
Korba Super Thermal Power Project. The balance power will be sold through PPAs to be entered by NTPC with State
Power Utilities
• Adressing its need for fuel requirements, JSW Energy acquired CIC Energy Corp (CIC). The deal has been structured to
acquire all the shares of CIC energy at a price of CAD 7.42 (Rs. 334.2) per share amounting to a total of CAD 422mn
(Rs. 19 bn). The deal is expected to be completed by the last quarter of FY11
• CIC is engaged in the development of Mmamabula Energy complex at its Mmamabula coal field in South‐Eastern
Botswana. This complex is planned to develop coal mines for export, setting up power plants and conveRs.ion of coal
to hydrocarbon. The company has 2.6bn tonnes of coal reserves. These reserves can also meet the requirement to
set up power plants in Botswana, and shall generate an exportable surplus of up to 20mn tons per annum over the
next forty years
• Adani Power synchronized supercritical unit of 660 MW at Mundra. This is in addition to synchronization of 330MW
unit at Mundra in Nov 2010
• GIPCL announced restoration of Unit III (125 MW) of Surat Lignite Power Project to normal operations in Nov 2010 after
necessary repaiRs.. The unit was shut down in Sep 2010 due to accidental damage to economizer hopper & boiler
• Reliance Power awarded 30,000MW BTG contract for coal based power plants during Oct 2010 to Shanghai Electric
Group. Also, the company concluded financing for 3960 MW Sasan UMPP by Bank of China, China Development Bank,
The Export Import Bank of China and Standard Chartered Bank amounting to Rs.50 bn (USD 1.1 bn)
• During this quarter, Lanco acquired 100% shares of Australia based Griffin Coal Mining Company and Carpenter Mine
Management. Griffin Coal owns the largest operational thermal coal mines in Western Australia. The mine currently
produces over 4 mtpa of coal and can be ramped up to over 15 mtpa in the near term, post development of evacuation
infrastructure. The mining tenements contain over 1.1 billion tonnes of JORC compliant thermal coal resources
• Lanco Infratech’s EPC Division has been awarded an EPC Contract valued at Rs..41 bn (USD 900 mn) by Moser Baer for
their 2 x 600 MW Coal Based Thermal Power Project
Utilities – Top Picks
PTC India
• We expect 51% profit CAGR for PTC over FY10‐13E on account of increase in trading volume from 18bn to 51bn units
over FY10‐13E, commissioning of tolling projects in FY12 and anticipation of strong growth by its financial services
subsidiary
• Core power trading business quotes at PER of 6.3xFY12E and 3.3FY13E. Consolidated PER of 18.4x FY12E and 10x
FY13E and P/B of 1.6x FY12E and 1.4x FY13E. We reiterate our ‘Buy’ rating with a SOTP based price target of Rs. 171
(37% upside)
Torrent Power
•We remain positive on the company for its volume visibility and sustained p p y y cash flows. Valuations now look attractive as
its is now trading at P/B of 2.6x FY11E and 2.2xFY12E post its recent correction. On P/E basis, it is trading at 10.6xFY11E
and 11.7xFY12E. We feel that the stock deserves a premium due to its niche operations. The recent correction has been
due to lower than expected Q2FY11 earnings and bleak merchant power outlook. However, we feel that long term
growth story remains intact
•Capacity expansion close to 1600MW is on stream and is expected to commence during FY12‐FY13, therefore addition
to volume growth. Dahej SEZ operations of the company which include generation, transmission and distribution would
give a big boost to the company’s top‐line and bottom‐line. We expect capacity expansion at Dahej and Sugen to take
the company to a new growth trajectory
•However, with near term soft outlook on earnings and lack of positive news flow from Kanpur circle, we downgrade our
P/BV multiple to 2.75times (25% premium to NTPC) from 3.2x earlier. We remain positive on the company and reiterate
a BUY with a revised target price of Rs.350 (2.5x FY12E BV)
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