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For 1QFY2012, we expect power-generating companies in our
universe to report top-line growth of 16.4% yoy, driven by
capacity additions and higher tariffs. The operating profit of
companies in our universe is expected to increase by 15.2%
yoy. Net profit is expected to increase by 12.7% yoy.
Capacity addition: Status check
Generation
As of May 2011, only 57% of the revised Eleventh Plan capacity
addition target of 62,374MW has been completed. During
FY2011, 12,160MW of capacity was added as against the
targeted 21,441MW. Capacity addition is expected to pick up
in FY2012, being the last year of the plan period. Capacity
addition has generally been delayed due to execution issues
relating to acquisition of land and obtaining environment and
other statutory clearances.
In all, we expect capacity addition of 42,000MW during the
plan period, which will be ~20,000MW short of the targeted
addition. Despite this shortfall in capacity addition, the quantum
of the actual addition will be well ahead of 27,283MW added
in the Tenth Plan.
Transmission lines
During 2MFY2012, 706 circuit kilometers (ckm) were added to
the 400kV transmission lines, as against the targeted 813ckm.
Total addition to the 220kV transmission line categories stood
at 309ckm, as against the targeted 197ckm.
Transmission sub-stations
During 2MFY2012, total addition to the 220kV sub-station
category stood at 980MW, as against the targeted 640MW.
Power-deficit situation
The country continues to face power deficit due to the delay in
commissioning of new capacities, fuel shortage and deficiencies
in the T&D system. India's overall and peak power-deficit levels
during 2MFY2012 stood at 7.2% and 9.3%, respectively, lower
than 13.0% and 13.8% reported in 2MFY2011.
Operational highlights
During 2MFY2012, power generation in India rose by 8.5%
yoy to 146BU (135BU). Overall, the country's thermal power
generation rose by 6.5% yoy to 120.5BU. The plant load factor
(PLF) of thermal plants for 2MFY2012 stood at 78.4%, higher
by 646bp than the targeted 71.94%. Hydro power generation
increased by 12.7% yoy to 20.2BU, while nuclear power
generated grew substantially by 54.7% yoy to 5.4BU during
the mentioned period
Power deficit highest in the western region
The western region continues to record the highest power deficit
in the country. During 2MFY2012, the region's power deficit
stood at 11.1%. Maharashtra, the highest power consuming
state in the country, had overall power deficit of 16.1% and
peak deficit of 18.6%. The eastern region had the lowest power
deficit of 4.5%, while the peak deficit was 6.3%.
Coal scenario
Availability
As of May 31, 2011, 24 critical thermal power stations out of
the 82 monitored by the CEA had critical coal stocks for less
than seven days. Currently, coal shortage has been due to
multiple reasons such as lower production by Coal India,
logistical issues and lower imports.
Global coal prices on the rise
Spot global coal prices were substantially higher on a yoy basis
during the quarter. Average prices of the New Castle Mckloksey
6,700kc coal stood at ~US$120/tonne in 1QFY2012 vs.
US$100/tonne in 1QFY2011. However, on a qoq basis, coal
prices were down by 6%.
Indonesian coal regulation
Currently, India's power sector imports a major portion of its
coal requirements from Indonesia. Further, various Indian
companies such as Tata Power and Adani Power intend to
operate their plants with Indonesian coal. Tata Power has
acquired a stake in Bumi Resources and has entered into an
agreement with Bumi for procuring ~12mtpa for its Mundra
plant. Similarly, Adani Power has entered into an agreement
with Adani Enterprises, its promoter group company, to procure
Indonesian coal for its plants in Mundra complex.
Recently, the Indonesian government has set a September 2011
deadline, by which coal export contracts should be re-negotiated
if contract prices are below the market price. If this rule comes
into effect, then the cost of imported coal would be based on a
reference price, which would be published by the Indonesian
government every month. The reference price would be the basis
for computation of royalty and taxes. This rule, when it takes
effect, will substantially increase the cost of imported coal and
would significantly affect the profitability of power players if
they could not modify their PPAs to pass on the price hikes using
the force majeure clause. The Association of Power Producers,
a body of private power generators, has already moved the
Ministry of Power for a change in the PPA clause.
Key developments
NTPC
NTPC commissioned the 660MW Unit 1 of Sipat Super Thermal
Power Project on June 28, 2011. With this, the total capacity of
NTPC Group now stands at 34,854MW. This is the first
supercritical 660MW unit of NTPC. With the commissioning of
this unit, the total installed capacity of Sipat Super Thermal Power
Project has become 1,660MW.
During the quarter, the Ministry of Coal de-allocated five coal
blocks, which were previously allotted due to lack of the progress
in development work. All these coal blocks were allocated on
June 25, 2006. Coal blocks that have been de-allocated are
Chhati-bariatu, Kerandari, Chhati-bariatu (south), Brahmini and
Chichro Pastimal.
CESC
CESC has entered into a deal with Australia's Resource
Generation (R-Gen) to buy a 4.8% stake in the latter for
A$10mn. The acquisition has been done through CESC's
subsidiary, Bantal Singapore Pte. Ltd., which has agreed to buy
12,195,122 shares of R-Gen at A$0.82 per share. Post this
acquisition, RPG Group's (promoter of CESC) stake in R-Gen
has increased to 11.2%. This deal also entails Integrated Coal
Mining (another affiliate of RPG) to get 139mn tonnes of coal
over 38 years from R-Gen's Boikarabelo mines in South Africa
from late CY2013 when mining starts in these mines. CESC is
exploring a possibility to set up a 2x660MW coal-fired plant
adjacent to Boikarabelo mines to utilise a portion of the coal.
CESC proposes to supply this power to the South African grid.
Adani Power
During the quarter, Adani Power became the largest private
sector thermal power generator in the country. The company
synchronised the second supercritical unit of 660MW at Mundra,
taking its overall capacity to 2,640MW. The company expects
to have 6,000MW operational by the end of FY2012, out of
the 16,500MW under development.
JSW Energy
JSW Energy has terminated its plans to acquire CIC Energy
Indonesia, as the required due diligence cannot be completed
before the deadline of May 31.
Performance on the bourses
Most of the power stocks under our coverage underperformed
the Sensex, which lost 3.1% during the quarter. GIPCL was the
biggest loser as the stock fell by 17.8% during the quarter.
NTPC and CESC also fell by 3.2% and 4.1%, respectively.
1QFY2012 expectations
For 1QFY2012, we expect NTPC to record a 16.6% yoy increase
in its top line to `15,094cr, aided by volume growth due to the
commencement of new capacities. Operating profit is expected
to increase by 15.1% yoy to `3,849cr. Net profit is expected to
increase by 13.5% yoy to `2,091cr.
CESC is expected to register 8.6% yoy growth in its standalone
top line to `1,191cr, aided by higher sales volume and better
realisation. OPM is expected to decline by 36bp yoy to 23.0%,
while net profit would increase by 14.1% yoy to `125cr during
1QFY2012.
We expect GIPCL to register a 41.3% yoy increase in revenue in
1QFY2012, primarily on the back of higher volumes.
Commissioning of Unit 3 and 4 in Surat is expected to aid
volume growth. OPM is set to expand by 194bp to 27.3%.
However, the bottom line is expected to decline by 29.4% yoy
to `29.6cr in 1QFY2012 on account of higher depreciation
and interest costs.
We expect PTC to record a 2.9% yoy jump in its standalone top
line to `2,839cr, aided by higher volumes. We expect the
company's operating margin to expand by 16bp yoy to 1.2%
on account of better trading margins. Net profit for the quarter
is expected to increase by 17.2% yoy to `32.6cr.
Outlook
We expect capacity addition to gather pace by the end of the
Eleventh Plan in FY2012. However, the country's power-deficit
scenario is likely to persist, as supply is unlikely to keep pace
with demand. The poor financial position of State Electricity
Boards (SEB) remains a major cause of concern for the industry.
Although there have been no reported instances of
non-repayment of dues by state utilities to generating
companies, there have been instances of delayed payments.
Poor financials have also resulted in increasing cases of backing
down by state utilities. State utilities are averse to buying
merchant power, which has resulted in merchant power tariffs
plummeting by ~50% from FY2009 levels. In this scenario,
players with fuel security and assured power offtake through
PPAs are safer bets as compared to merchant power players.
We maintain our Accumulate recommendation on NTPC and
Buy view on CESC and GIPCL .
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