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Uptick in tariff and order awards
Short term tariffs are again on an uptrend with five state elections in April
and May. We expect the trend would reverse post the summer months.
India has crossed 10GW addition in FY11 – highest ever yearly addition –
of which 9GW is coal based. In contrast, India’s coal production has
increased by only 0.5% in 10MFY11. We continue to prefer utilities with
low risk on fuel/merchant power exposure. The increased traction in
PowerGrid’s orders is positive for T&D equipment suppliers. BHEL’s order
booking is also healthy and slippages, if any, versus the target would be
small.
Short term tariff on an uptrend due to upcoming state elections
q The spot merchant tariff has been on an uptrend recently. With the sate elections in
April and May the trend is likely to continue for next couple of months.
q The spot power prices in South India are usually more in these circumstances due
to inadequate grid interconnection with other regions (benefits JSW Energy).
q We expect the tariffs to correct post the elections and summer season. The capacity
addition in FY11 has been record high and FY12 will be even higher.
Uptick in order awards from Powergrid
q After a lacklustre order awards for most of FY11 there is pick-up in momentum in
4Q with order awards of Rs29bn in Jan- Feb.
q Powergrid also placed the US$1.1bn order for the 800kv HVDC line in March on
ABB/BHEL. This increased momentum is good news for T&D equipment
manufacturers and EPC contractors. Crompton is our preferred pick.
Five states contribute to 50% of capacity addition in the 11th plan
q Gujarat, Maharashtra, Chattisgarh, Andhra Pradesh and WB have contributed to
50% of the total 32GW capacity commissioned in the 11th five year plan.
q These states contribute 68% of capacity setup by private sector (11GW) as well.
9.4GW of 11GW addition by the private sector has been added in last two years.
Preference for low risk utilities; BHEL and Crompton
q We expect 2011 to be a tough year for generation utilities which will be exposed to
domestic coal shortages, high imported/domestic coal prices and probably lower
utilization rates, especially for merchant capacity, with states’ tendency to back
down on power procurement to cut down on their losses.
q We continue to prefer the stocks with low risk business models i.e. high fuel
security, safer PPAs and lower exposure to the short term market.
q On this theme we like NTPC, Tata Power and JSPL.
q Pick up in capacity addition is positive for revenue recognition for BHEL. Its
orderflow remains healthy and should be in line with/close to the target in FY11.
BHEL remains our top power equipment pick in the region.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Uptick in tariff and order awards
Short term tariffs are again on an uptrend with five state elections in April
and May. We expect the trend would reverse post the summer months.
India has crossed 10GW addition in FY11 – highest ever yearly addition –
of which 9GW is coal based. In contrast, India’s coal production has
increased by only 0.5% in 10MFY11. We continue to prefer utilities with
low risk on fuel/merchant power exposure. The increased traction in
PowerGrid’s orders is positive for T&D equipment suppliers. BHEL’s order
booking is also healthy and slippages, if any, versus the target would be
small.
Short term tariff on an uptrend due to upcoming state elections
q The spot merchant tariff has been on an uptrend recently. With the sate elections in
April and May the trend is likely to continue for next couple of months.
q The spot power prices in South India are usually more in these circumstances due
to inadequate grid interconnection with other regions (benefits JSW Energy).
q We expect the tariffs to correct post the elections and summer season. The capacity
addition in FY11 has been record high and FY12 will be even higher.
Uptick in order awards from Powergrid
q After a lacklustre order awards for most of FY11 there is pick-up in momentum in
4Q with order awards of Rs29bn in Jan- Feb.
q Powergrid also placed the US$1.1bn order for the 800kv HVDC line in March on
ABB/BHEL. This increased momentum is good news for T&D equipment
manufacturers and EPC contractors. Crompton is our preferred pick.
Five states contribute to 50% of capacity addition in the 11th plan
q Gujarat, Maharashtra, Chattisgarh, Andhra Pradesh and WB have contributed to
50% of the total 32GW capacity commissioned in the 11th five year plan.
q These states contribute 68% of capacity setup by private sector (11GW) as well.
9.4GW of 11GW addition by the private sector has been added in last two years.
Preference for low risk utilities; BHEL and Crompton
q We expect 2011 to be a tough year for generation utilities which will be exposed to
domestic coal shortages, high imported/domestic coal prices and probably lower
utilization rates, especially for merchant capacity, with states’ tendency to back
down on power procurement to cut down on their losses.
q We continue to prefer the stocks with low risk business models i.e. high fuel
security, safer PPAs and lower exposure to the short term market.
q On this theme we like NTPC, Tata Power and JSPL.
q Pick up in capacity addition is positive for revenue recognition for BHEL. Its
orderflow remains healthy and should be in line with/close to the target in FY11.
BHEL remains our top power equipment pick in the region.
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