Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Know Your Power
Merchant prices soft; capacity additions play catch-up;
prefer defensives and strong execution plays
• Defensives maintained their outperforming streak: During January,
Powergrid Corp, NTPC, and TPWR outperformed the falling market, as
investors shunned risk. Lanco (high leverage), RPWR (expensive, ADAG
group concerns) and JSW Energy (weak execution, open coal, merchant
exposure) were the key underperformers. Adani held firm on the back of
good execution (1,980MW operational on time) and strong PLF.
• Merchant prices continued their downward journey with the weighted
average at Rs3.03 in Nov-10 (Rs3.29 in Oct-10). Bilateral transactions
occurred at Rs3.91/KWH, down 2.3% mom but well above UI and
exchange prices. Bilateral transactions recovered to 49% of traded power,
after dipping to 41% in October. Prices of new three-month contracts struck
in December were down 1-3% as compared to those struck in November for
the same period.
• After four weak months, peak power demand rose 5.7% in Dec-10: Peak
deficit rose to 10.5% (up 1.8% mom) but continued to trend down YoY
(-1.3%). Capacity addition for Dec-10, at 2.6GW, exceeded the target due to
spillover of previous slippages. The rise in demand could be due to: a)
higher supply; hence, less load-shedding; and b) more reasonable merchant
prices.
• Dec-quarter results so far + expectations: As expected, JSWE and GVKP
reported weak results, the key theme being lower PLF on the back of fuel
availability issues. RPWR will likely see similar problems. On the other
hand, we expect higher average operating MW to drive QoQ growth for
Adani Power and Lanco. For TPWR, coal volumes and pricing would be the
key variable, wherein we expect QoQ growth.
• Defensiveness and execution the likely key themes for months ahead:
Risk appetite remains low, and we see a shift occurring toward Powergrid
Corp, NTPC (both defensives) as well as strong execution names like Adani
Power. We think a return of risk appetite would cause a bounceback in
beaten down names like Lanco and GVK.
Short-term traded volume continues to be muted
Short-term transactions as a percentage of total power generated inched up to 9.01%
in Nov-10, compared to 8.85% in Oct-10 and a peak level of 12.9% in Jul’ 10 (see
Figure 1). However, volumes are well off peak levels.
In our view, there are two plausible explanations for this: a) state utilities are
refraining from the market, choosing not to buy expensive power and/or, b) IPPs did
not want to enter into three-month bilateral contracts around July-August (which, in
turn, is showing in Dec volumes) as forward contract rates were lower. In hindsight,
state utilities made the right decision not to enter into bilateral transactions, as
UI/exchange prices have remained lower than bilaterals over the last few months
Within short-term transactions, the share of bilateral contracts increased to 49%,
compared to 41% in Oct-10 and a peak level of 58%. On the other hand,the share of
Unscheduled Interchange (UI) decreased to 34.6% (39.6% month ago) and that of
power exchange declined to 16.7% (19.2% month ago).
Merchant prices continued their downward journey
Weighted average merchant price were at Rs3.03 in Nov-10 vs. Rs3.29 in Oct.
Bilateral transactions occurred at Rs3.91/KWH, down 2.3% mom but well above UI
and exchange prices. Price levels of new three-month contracts struck in December
were down 1-3% as compared to those struck in November for the same time period.
Power deficit inches up in Dec, but YoY trend is declining;
weak demand growth continues
Dec-10 energy deficit of 8.2% while up MoM, is down 200bps YoY, while average
energy deficit over last 6months (7.2%) is down 218bps YoY. The decline is similar
in the case of peak deficit. Dec-10 peak deficit of 10.5% is down 130bps, while
average peak deficit over the last six months (10.13%) is down 223bps.
Power demand growth although improved since October, has been weak over the
past few months. Average monthly energy demand growth over the past six months
was just 1.9%, compared to 9.8% in the corresponding period last year. Similarly,
peak demand growth over the last six months has averaged 3.5% vs. 5.1% last year.
Capacity addition picks up in December; but YTD capacity
addition is just 66% of the target and 12GW needs to be
added in 4Q to meet CEA’s FY11 target
Monthly capacity additions in December, at 2.6GW (excl. renewables), was ahead of
the official target of 2.3GW additions, with previous slip ups catching up in the
months. Only the 660MW at Adani's Mundra Plant was commissioned ahead of
schedule.
All projects originally targeted for Dec-10 CoD slipped. This includes Barmer Unit-6
(135MW) of JSW Energy, only two units of Barmer have been commissioned so far
and we estimate one more unit to achieve CoD in FY11.
Other projects that slipped in the month were all State/Central projects including the
4th 220MW nuclear unit at Kaiga, while the 250MW gas-based Pragati project in
Delhi was commissioned ahead of schedule in Oct ’10.
CEA maintains its FY11 cap-add target of 21.4GW, vs. YTD actual of 9.7GW.
While this data points toward potential slippage (which is already factored into stock
prices), it is indeed imminent that a lot of capacities would get bunched up over the
next three years.
During 11th 5YP thru Dec-10, 27GW has been added vs. Govt’s revised target of
62GW. With 1.25 years pending for the completion of the 11th Plan, the implied
target of ~35GW for the remnant plan period seems difficult, in our view
Key projects likely for FY11 completion in our view:
• NTPC’s Farakka, Sipat, Simhadri (total 3.2GW).
• Lanco’s Udupi’s 2nd Unit (600MW).
• The balance of units at JSW’s Ratnagiri (we estimate none will be
commissioned vs. target of 2X300MW) and Barmer (we estimate one unit will
be commissioned vs. original target of 6X135MW). Management also guided
down these CEA estimates.
Correlating recent news flows to stock performance
Powergrid Corp, NTPC, and TPWR outperformed the falling market, as investors
shunned risk. Lanco (high leverage), RPWR (expensive, investment concerns of
ADAG group) and JSW Energy (weak execution, open coal, merchant exposure)
were the key underperformers. As expected, JSWE and GVKP reported weak results,
the key theme being lower PLF on the back of fuel availability issues. RPWR will
likely see similar problems.
Adani held firm on the back of good execution (1,980MW operational on time) and
strong PLF. We expect higher average operating MW to drive QoQ growth for Adani
Power and Lanco in the December quarter. For TPWR, coal volumes and pricing
would be the key variable, wherein we expect QoQ growth.
Adjusted for one-off in taxes, NTPC reported PAT of Rs20.4B, in line with
expectations. However, despite capacity additions, PAT declined yoy.
Valuation and stock picks
Risk appetite remains low, in our view, and we see a shift toward defensives like
Powergrid Corp (OW) and NTPC (N). We also prefer strong execution names like
Adani Power (OW). We believe a return of risk appetite would cause a bounceback
in beaten down names like Lanco (OW) and GVK (OW).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Know Your Power
Merchant prices soft; capacity additions play catch-up;
prefer defensives and strong execution plays
• Defensives maintained their outperforming streak: During January,
Powergrid Corp, NTPC, and TPWR outperformed the falling market, as
investors shunned risk. Lanco (high leverage), RPWR (expensive, ADAG
group concerns) and JSW Energy (weak execution, open coal, merchant
exposure) were the key underperformers. Adani held firm on the back of
good execution (1,980MW operational on time) and strong PLF.
• Merchant prices continued their downward journey with the weighted
average at Rs3.03 in Nov-10 (Rs3.29 in Oct-10). Bilateral transactions
occurred at Rs3.91/KWH, down 2.3% mom but well above UI and
exchange prices. Bilateral transactions recovered to 49% of traded power,
after dipping to 41% in October. Prices of new three-month contracts struck
in December were down 1-3% as compared to those struck in November for
the same period.
• After four weak months, peak power demand rose 5.7% in Dec-10: Peak
deficit rose to 10.5% (up 1.8% mom) but continued to trend down YoY
(-1.3%). Capacity addition for Dec-10, at 2.6GW, exceeded the target due to
spillover of previous slippages. The rise in demand could be due to: a)
higher supply; hence, less load-shedding; and b) more reasonable merchant
prices.
• Dec-quarter results so far + expectations: As expected, JSWE and GVKP
reported weak results, the key theme being lower PLF on the back of fuel
availability issues. RPWR will likely see similar problems. On the other
hand, we expect higher average operating MW to drive QoQ growth for
Adani Power and Lanco. For TPWR, coal volumes and pricing would be the
key variable, wherein we expect QoQ growth.
• Defensiveness and execution the likely key themes for months ahead:
Risk appetite remains low, and we see a shift occurring toward Powergrid
Corp, NTPC (both defensives) as well as strong execution names like Adani
Power. We think a return of risk appetite would cause a bounceback in
beaten down names like Lanco and GVK.
Short-term traded volume continues to be muted
Short-term transactions as a percentage of total power generated inched up to 9.01%
in Nov-10, compared to 8.85% in Oct-10 and a peak level of 12.9% in Jul’ 10 (see
Figure 1). However, volumes are well off peak levels.
In our view, there are two plausible explanations for this: a) state utilities are
refraining from the market, choosing not to buy expensive power and/or, b) IPPs did
not want to enter into three-month bilateral contracts around July-August (which, in
turn, is showing in Dec volumes) as forward contract rates were lower. In hindsight,
state utilities made the right decision not to enter into bilateral transactions, as
UI/exchange prices have remained lower than bilaterals over the last few months
Within short-term transactions, the share of bilateral contracts increased to 49%,
compared to 41% in Oct-10 and a peak level of 58%. On the other hand,the share of
Unscheduled Interchange (UI) decreased to 34.6% (39.6% month ago) and that of
power exchange declined to 16.7% (19.2% month ago).
Merchant prices continued their downward journey
Weighted average merchant price were at Rs3.03 in Nov-10 vs. Rs3.29 in Oct.
Bilateral transactions occurred at Rs3.91/KWH, down 2.3% mom but well above UI
and exchange prices. Price levels of new three-month contracts struck in December
were down 1-3% as compared to those struck in November for the same time period.
Power deficit inches up in Dec, but YoY trend is declining;
weak demand growth continues
Dec-10 energy deficit of 8.2% while up MoM, is down 200bps YoY, while average
energy deficit over last 6months (7.2%) is down 218bps YoY. The decline is similar
in the case of peak deficit. Dec-10 peak deficit of 10.5% is down 130bps, while
average peak deficit over the last six months (10.13%) is down 223bps.
Power demand growth although improved since October, has been weak over the
past few months. Average monthly energy demand growth over the past six months
was just 1.9%, compared to 9.8% in the corresponding period last year. Similarly,
peak demand growth over the last six months has averaged 3.5% vs. 5.1% last year.
Capacity addition picks up in December; but YTD capacity
addition is just 66% of the target and 12GW needs to be
added in 4Q to meet CEA’s FY11 target
Monthly capacity additions in December, at 2.6GW (excl. renewables), was ahead of
the official target of 2.3GW additions, with previous slip ups catching up in the
months. Only the 660MW at Adani's Mundra Plant was commissioned ahead of
schedule.
All projects originally targeted for Dec-10 CoD slipped. This includes Barmer Unit-6
(135MW) of JSW Energy, only two units of Barmer have been commissioned so far
and we estimate one more unit to achieve CoD in FY11.
Other projects that slipped in the month were all State/Central projects including the
4th 220MW nuclear unit at Kaiga, while the 250MW gas-based Pragati project in
Delhi was commissioned ahead of schedule in Oct ’10.
CEA maintains its FY11 cap-add target of 21.4GW, vs. YTD actual of 9.7GW.
While this data points toward potential slippage (which is already factored into stock
prices), it is indeed imminent that a lot of capacities would get bunched up over the
next three years.
During 11th 5YP thru Dec-10, 27GW has been added vs. Govt’s revised target of
62GW. With 1.25 years pending for the completion of the 11th Plan, the implied
target of ~35GW for the remnant plan period seems difficult, in our view
Key projects likely for FY11 completion in our view:
• NTPC’s Farakka, Sipat, Simhadri (total 3.2GW).
• Lanco’s Udupi’s 2nd Unit (600MW).
• The balance of units at JSW’s Ratnagiri (we estimate none will be
commissioned vs. target of 2X300MW) and Barmer (we estimate one unit will
be commissioned vs. original target of 6X135MW). Management also guided
down these CEA estimates.
Correlating recent news flows to stock performance
Powergrid Corp, NTPC, and TPWR outperformed the falling market, as investors
shunned risk. Lanco (high leverage), RPWR (expensive, investment concerns of
ADAG group) and JSW Energy (weak execution, open coal, merchant exposure)
were the key underperformers. As expected, JSWE and GVKP reported weak results,
the key theme being lower PLF on the back of fuel availability issues. RPWR will
likely see similar problems.
Adani held firm on the back of good execution (1,980MW operational on time) and
strong PLF. We expect higher average operating MW to drive QoQ growth for Adani
Power and Lanco in the December quarter. For TPWR, coal volumes and pricing
would be the key variable, wherein we expect QoQ growth.
Adjusted for one-off in taxes, NTPC reported PAT of Rs20.4B, in line with
expectations. However, despite capacity additions, PAT declined yoy.
Valuation and stock picks
Risk appetite remains low, in our view, and we see a shift toward defensives like
Powergrid Corp (OW) and NTPC (N). We also prefer strong execution names like
Adani Power (OW). We believe a return of risk appetite would cause a bounceback
in beaten down names like Lanco (OW) and GVK (OW).
No comments:
Post a Comment