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Capacity addition to drive growth
During Q4FY11, short-term power rates remained
subdued at ~Rs3.6/unit in the country (down 10% YoY).
After excluding the southern region, these rates further
fall to Rs3.4/unit. Despite lower merchant power
realisations, generation capacity addition would drive
revenue growth for power companies. We expect
revenue and PAT for our power universe to grow 27%
and 24% YoY, respectively.
�� Capacity addition to drive revenue growth, despite
low merchant rates: Despite Q4 being a favourable
season for short-term power, merchant rates remained
under stress during Q4FY11, due to high generation
capacity addition (~15MW during FY11 till Feb 2011)
and the reluctance of SEBs to buy power at high rates.
Average power realisation at power exchanges in Q4
was Rs3.6/unit (~Rs3.4/unit if the southern region is
excluded). However, traded volumes at exchanges
increased ~85% YoY. We expect PGCIL to add Rs24.1bn
worth of assets and register a sequential growth of 17%
in Q4FY11E. Overall, due to generation capacity
addition, we expect 27% YoY revenue growth for our
power universe.
�� PTC’s volumes to grow 48% YoY: As the growth in
short-term power trading volumes was strong in Q4,
we expect PTC’s volumes to grow 48% YoY and to
4.7BU. On a QoQ basis though, volumes are expected
to register a decline of 18% due to negligible
contribution from cross-border power plants and other
hydel capacities. However, as low-margin yielding
cross-border power volumes have negligible
contribution in overall volumes, trading margins for
Q4FY11E are expected at 5.25paise/unit, up 14% QoQ.
�� Strong PAT growth expected: Capacity addition
would boost the overall sector’s PAT by 24.4% YoY.
Tata Power, which has witnessed no significant
capacity addition, is expected to register 13.9% YoY
drop in PAT due to higher tax. CESC, PGCIL and Lanco
Infra are expected to witness a PAT growth of 22%, 35%
and 77%, respectively, on account of capacity additions
and higher other income.
Pressure on merchant power rates persists
Despite Q4 being a favourable period of the year for short-term power, merchant realisations
remained subdued during Q4FY11, due to higher generation capacity addition (~15MW during
FY11 till Feb) and the reluctance SEBs to buy power at high rates. Merchant power rates in Q4FY11
on IEX, which accounts for ~85% of total power traded through exchanges, were higher by 5% YoY
and 21% YoY in January and February, respectively. However, they declined 41% YoY in March.
Average price during Q4FY11 was Rs3.57/unit vs Rs3.97/unit in Q4FY10. Due to elections, merchant
rates were firmer in the southern region at Rs6.5.unit during the quarter. Therefore, excluding the
southern region, merchant rates for rest of the country were even lower at Rs3.4/unit. As guided by
CERC’s monthly report on OTC power trade, the prices of OTC traded power remained close to what
prevailed in the exchanges. Therefore, we believe the realisation for merchant power companies
would have been in the range of RsRs3.75-Rs4/unit during Q4FY11E
Tata Power (Buy; Target Price: Rs1,525)
�� We expect Q4FY11 revenue to grow 5.6% YoY to Rs56.5bn, primarily on account of higher fuel
cost and marginal improvement in contribution from its coal investments. Though, we expect
production from the Indonesian coal mines to remain flat YoY, however as international coal
prices during the quarter were ~30% higher YoY, income is expected to register a marginal
growth in Q4FY11E.
�� Due to better coal realizations, EBIDTA margins for the quarter are expected to be marginally
better at 22% vs 21% in Q4FY10. EBIDTA is expected to rise 11.3% YoY to Rs12.4bn in Q4FY11E.
�� PAT for the quarter is expected to decline 13.9% YoY to Rs5.06bn.
�� Tata Power commissioned Unit 5 of Jojobera Power Plant in March 2011. The company, in a JV
with SN Power of Norway, bagged a 236MW hydro power plant in Himachal Pradesh.
PGCIL (Buy; Target Price: Rs120)
�� We expect PGCIL’s revenues to grow 20.6% YoY and 17.3% QoQ to Rs24.1bn, mainly buoyed by
capacity addition. We expect a gross block addition of ~Rs24bn during the quarter.
�� EBIDTA is expected to grow 26.1% YoY to Rs19.9bn.
�� Due to transmission capacity addition and higher other income, we expect Q4FY11E PAT to
grow 34.7% YoY to Rs7.3bn.
�� During the quarter, PGCIL’s board approved three projects with a total capital expenditure
requirement of Rs43.5bn. The company has also sought approval from CERC for venturing into
the tower leasing business.
Lanco Infratech (Rating under review)
�� LITL’s Q4FY11E revenues are expected to grow 43.3% YoY on account of commissioning of
1.6GW of generation capacity in the form of Kondapalli II, Udupi Unit 1 and Amarkantak I & II.
However, as the company continues to sell power from Amarkantak Unit II in the UI market,
both PLF and realisations remain suppressed. Also, the commissioning of Udupi Unit II is
expected to get delayed due to unavailability of evacuation infrastructure.
�� EBIDTA is expected at Rs5.6bn, implying an EBIDTA margin of 15.3% for Q4FY11E. Due to
generation capacity addition and higher other income, PAT for the quarter is expected to grow
76.9% YoY to Rs2bn.
�� Lanco Infra has sought changes in the PPA signed with Haryana SEB (power agreed to be sold
from Unit 2 of Amarkantak TPP) from the Appellate Tribunal. The company had earlier agreed to
supply power to Haryana SEB at a levelised tariff of Rs2.32/unit. However, citing reasons (35%
power to Chattisgarh SEB, lower coal receipts from CIL and Rs1890mn increase in capital cost)
the company has appealed to the Appellate Tribunal to sell power to Haryana SEB on CERCguided
tariff norms. The Tribunal is expected to give its judgment in May 2011. The company
has been selling power from Amarkatak unit 2 in the UI market since February 2010.
CESC (Buy; Target Price: Rs414)
�� We expect Q4FY11 revenue to grow 37.9% YoY to Rs10.6bn on account of generation capacity
addition from the 250MW Budge-Budge power plant.
�� EBIDTA is expected to grow 36.1% YoY to Rs2.72bn and PAT 21.3% YoY to Rs1.21bn in Q4FY11E.
PTC (Buy; Target Price: Rs160)
�� Factoring in the 85% YoY growth in volumes on power exchanges, we believe PTC’s Q4FY11E
volume will grow 48% YoY to 4.7BU. However, on a QoQ basis, volumes are expected to register
a decline of 18% due to negligible contribution from cross-border power plants and other hydel
capacities.
�� Assuming price realization of Rs4.25/unit, we estimate Q4FY11 revenue at Rs20.2bn.
Realizations in short-term power market were subdued during the quarter. Also, the
Amarkantak Unit 2 continues to sell power in UI market, the proportion of long-term volumes is
expected to remain low. Power trading margin is expected in the range of 5.25 paisa/unit, 14%
higher QoQ. Total power trading margin earnings is expected at Rs249mn.
�� On the back of volume growth and higher other income, we expect PAT to grow 92.9% YoY to
Rs263mn in Q4FY11E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capacity addition to drive growth
During Q4FY11, short-term power rates remained
subdued at ~Rs3.6/unit in the country (down 10% YoY).
After excluding the southern region, these rates further
fall to Rs3.4/unit. Despite lower merchant power
realisations, generation capacity addition would drive
revenue growth for power companies. We expect
revenue and PAT for our power universe to grow 27%
and 24% YoY, respectively.
�� Capacity addition to drive revenue growth, despite
low merchant rates: Despite Q4 being a favourable
season for short-term power, merchant rates remained
under stress during Q4FY11, due to high generation
capacity addition (~15MW during FY11 till Feb 2011)
and the reluctance of SEBs to buy power at high rates.
Average power realisation at power exchanges in Q4
was Rs3.6/unit (~Rs3.4/unit if the southern region is
excluded). However, traded volumes at exchanges
increased ~85% YoY. We expect PGCIL to add Rs24.1bn
worth of assets and register a sequential growth of 17%
in Q4FY11E. Overall, due to generation capacity
addition, we expect 27% YoY revenue growth for our
power universe.
�� PTC’s volumes to grow 48% YoY: As the growth in
short-term power trading volumes was strong in Q4,
we expect PTC’s volumes to grow 48% YoY and to
4.7BU. On a QoQ basis though, volumes are expected
to register a decline of 18% due to negligible
contribution from cross-border power plants and other
hydel capacities. However, as low-margin yielding
cross-border power volumes have negligible
contribution in overall volumes, trading margins for
Q4FY11E are expected at 5.25paise/unit, up 14% QoQ.
�� Strong PAT growth expected: Capacity addition
would boost the overall sector’s PAT by 24.4% YoY.
Tata Power, which has witnessed no significant
capacity addition, is expected to register 13.9% YoY
drop in PAT due to higher tax. CESC, PGCIL and Lanco
Infra are expected to witness a PAT growth of 22%, 35%
and 77%, respectively, on account of capacity additions
and higher other income.
Pressure on merchant power rates persists
Despite Q4 being a favourable period of the year for short-term power, merchant realisations
remained subdued during Q4FY11, due to higher generation capacity addition (~15MW during
FY11 till Feb) and the reluctance SEBs to buy power at high rates. Merchant power rates in Q4FY11
on IEX, which accounts for ~85% of total power traded through exchanges, were higher by 5% YoY
and 21% YoY in January and February, respectively. However, they declined 41% YoY in March.
Average price during Q4FY11 was Rs3.57/unit vs Rs3.97/unit in Q4FY10. Due to elections, merchant
rates were firmer in the southern region at Rs6.5.unit during the quarter. Therefore, excluding the
southern region, merchant rates for rest of the country were even lower at Rs3.4/unit. As guided by
CERC’s monthly report on OTC power trade, the prices of OTC traded power remained close to what
prevailed in the exchanges. Therefore, we believe the realisation for merchant power companies
would have been in the range of RsRs3.75-Rs4/unit during Q4FY11E
Tata Power (Buy; Target Price: Rs1,525)
�� We expect Q4FY11 revenue to grow 5.6% YoY to Rs56.5bn, primarily on account of higher fuel
cost and marginal improvement in contribution from its coal investments. Though, we expect
production from the Indonesian coal mines to remain flat YoY, however as international coal
prices during the quarter were ~30% higher YoY, income is expected to register a marginal
growth in Q4FY11E.
�� Due to better coal realizations, EBIDTA margins for the quarter are expected to be marginally
better at 22% vs 21% in Q4FY10. EBIDTA is expected to rise 11.3% YoY to Rs12.4bn in Q4FY11E.
�� PAT for the quarter is expected to decline 13.9% YoY to Rs5.06bn.
�� Tata Power commissioned Unit 5 of Jojobera Power Plant in March 2011. The company, in a JV
with SN Power of Norway, bagged a 236MW hydro power plant in Himachal Pradesh.
PGCIL (Buy; Target Price: Rs120)
�� We expect PGCIL’s revenues to grow 20.6% YoY and 17.3% QoQ to Rs24.1bn, mainly buoyed by
capacity addition. We expect a gross block addition of ~Rs24bn during the quarter.
�� EBIDTA is expected to grow 26.1% YoY to Rs19.9bn.
�� Due to transmission capacity addition and higher other income, we expect Q4FY11E PAT to
grow 34.7% YoY to Rs7.3bn.
�� During the quarter, PGCIL’s board approved three projects with a total capital expenditure
requirement of Rs43.5bn. The company has also sought approval from CERC for venturing into
the tower leasing business.
Lanco Infratech (Rating under review)
�� LITL’s Q4FY11E revenues are expected to grow 43.3% YoY on account of commissioning of
1.6GW of generation capacity in the form of Kondapalli II, Udupi Unit 1 and Amarkantak I & II.
However, as the company continues to sell power from Amarkantak Unit II in the UI market,
both PLF and realisations remain suppressed. Also, the commissioning of Udupi Unit II is
expected to get delayed due to unavailability of evacuation infrastructure.
�� EBIDTA is expected at Rs5.6bn, implying an EBIDTA margin of 15.3% for Q4FY11E. Due to
generation capacity addition and higher other income, PAT for the quarter is expected to grow
76.9% YoY to Rs2bn.
�� Lanco Infra has sought changes in the PPA signed with Haryana SEB (power agreed to be sold
from Unit 2 of Amarkantak TPP) from the Appellate Tribunal. The company had earlier agreed to
supply power to Haryana SEB at a levelised tariff of Rs2.32/unit. However, citing reasons (35%
power to Chattisgarh SEB, lower coal receipts from CIL and Rs1890mn increase in capital cost)
the company has appealed to the Appellate Tribunal to sell power to Haryana SEB on CERCguided
tariff norms. The Tribunal is expected to give its judgment in May 2011. The company
has been selling power from Amarkatak unit 2 in the UI market since February 2010.
CESC (Buy; Target Price: Rs414)
�� We expect Q4FY11 revenue to grow 37.9% YoY to Rs10.6bn on account of generation capacity
addition from the 250MW Budge-Budge power plant.
�� EBIDTA is expected to grow 36.1% YoY to Rs2.72bn and PAT 21.3% YoY to Rs1.21bn in Q4FY11E.
PTC (Buy; Target Price: Rs160)
�� Factoring in the 85% YoY growth in volumes on power exchanges, we believe PTC’s Q4FY11E
volume will grow 48% YoY to 4.7BU. However, on a QoQ basis, volumes are expected to register
a decline of 18% due to negligible contribution from cross-border power plants and other hydel
capacities.
�� Assuming price realization of Rs4.25/unit, we estimate Q4FY11 revenue at Rs20.2bn.
Realizations in short-term power market were subdued during the quarter. Also, the
Amarkantak Unit 2 continues to sell power in UI market, the proportion of long-term volumes is
expected to remain low. Power trading margin is expected in the range of 5.25 paisa/unit, 14%
higher QoQ. Total power trading margin earnings is expected at Rs249mn.
�� On the back of volume growth and higher other income, we expect PAT to grow 92.9% YoY to
Rs263mn in Q4FY11E.
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