India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management Q&A
We interacted with five power companies on fuel security, merchant
power exposure, SEB finances and safety features of their power
purchase agreements. The companies don’t foresee a risk of of SEBs
defaulting on the power purchase agreements (PPAs) but expect the
short term tariffs to converge with long term PPA tariffs in medium term.
Key concern for the sector remains fuel availability. Our preferred picks
are Tata Power, NTPC and Powergrid.
Adani Power
q Adani Power will require ~10mt of domestic coal for Mundra (I – IV) and ~8mt for
Tiroda (I –II) power project once fully commissioned. The company expects to get
~8mt of coal from AEL which would be mostly used for the Mundra power projects.
q The company has tied up its merchant capacity for next one year at a tariff ranging
between Rs4.1-4.7/kWh. Over the longer term 85% of the power capacity would be
tied up in long term agreements and thus the utilization rates would not be
impacted by the short term sales.
q Adani’s have a superior track record on execution but we believe the key challenge
would be sourcing of coal for the Tiroda project.
CESC
q CESC’s existing power business is well placed with respect to fuel security. For its
expansion projects the company would be dependent on coal linkages from Coal
India – most of these incremental requirements would start in FY14.
q CESC currently does not have any exposure to SEBs as it distributes the power in
Kolkata licence area but this will change in future once Chandrapur and Haldia
projects are commissioned. CESC has no exposure to short term market.
q We continue to like the power business of CESC but the retail business has been a
continuous drag. The expected go-ahead for FDI in retail could possibly be a rerating
event for the stock.
Lanco
q Lanco is confident of receiving ~70% of its coal requirements from Coal India. The
company plans to source the balance through a combination of e-auction and
imports. Over the longer term the company expects to source coal from the Griffin
mines in Australia.
q The company has two 100% merchant power plants – 300MW Amarkantak I and
366MW Kondapalli II. Lanco however expects the short term tariff to converge with
the long term PPA rates in the future.
q Lanco is one of the cheapest power stocks in India on a PE and EV/Ebitda basis.
However, it is likely to face coal shortages and is vulnerable to a drop in
merchant-power tariffs.
NTPC
q NTPC has FSAs in place for most of its installed capacity. Most of the NTPC’s power
projects are close to the coal mines (owned by Coal India) with dedicated merrygo-
round railway facility (for 60% of its requirements) and NTPC owned railway
rakes - which gives it a key advantage.
q We believe NTPC would remain a preferred customer for future coal allocations as
well.
q We have recently adjusted our earnings for the company building in lower
incentives due to lower utilization.
Tata Power
q Tata Power is best placed in terms of fuel security for its existing as well as
expansion projects. The company also has minimal exposure to merchant power.
q The company would be adding 2.8GW new capacity in FY12 and another 2.5GW in
FY13.
q While Mundra project would make losses at the current coal prices that would be
more than compensated by the coal earnings from Indonesian mines.
No comments:
Post a Comment