Utilities ::1QFY12 Preview:: BofA Merrill Lynch,

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Utilities
Potential result outperformers: Adani Power
Potential result underperformers: NTPC
In the Utility sector, markets will likely be focused on extent of fall in merchant
power rates and progress on future plans such as expansion in generation
capacity, update on new IPP projects, impact of coal on PLFs and AT&C loss
reduction in New Delhi JVs of Reliance and Tata Power.
We expect the Indian Utility Sector, represented by Adani Power (APL), NTPC,
Reliance Infra, Tata Power, Neyveli, GIPCL and JP Power to report sales growth
of 10%YoY, EBITDA growth of +17%YoY and PAT growth of 8%YoY mainly led
by APL, GIPCL and Tata Power.
􀂄 Adani Power: We expect APL to report 33%QoQ (102%YoY) growth in 1QFY12
Rec. PAT as it takes full impact of its 1st 660MW unit leading to 43%QoQ growth in
generation during Apr-May. APL remains one of our top picks.


􀂄 We expect NTPC’s 1QFY12 to be weak on lower incentives on generation.
Generation fell by 1% during Apr-May despite 2GW additional capacity on backdown
by clients. Fuel cost savings remain on-track in 1Q but the sales from its
high margin spot market may slow due to cap on realization from UI market. On
recurring basis, we expect 2%YoY growth in 1QFY12 PAT of NTPC.
􀂄 Reliance Infra: We expect a muted 1Q with recurring PAT +3%YoY on
12%YoY lower treasury income on investment in Infra SPVs and higher
interest. We expect 10%YoY growth in sales led by impact of new tariff
offset by lower electricity volume, high cost of power purchased and 50%YoY
growth in E&C revenues. Expect 19%YoY EBITDA growth on past recovery
in license area & strong E&C.
􀂄 Tata Power: We expect Tata Power to witness recurring PAT (consol.)
growth of 13%YoY led +17%YoY in parent rec PAT and 10% higher coal
volume and ASP growth of 35% despite higher interest and depreciation.
􀂄 Neyveli: A ~3% growth in generation during Apr-May led by commissioning
of 250MW unit at Barsingsar to add incremental RoE.
􀂄 GIPCL: We expect GIPCL to report a 12%YoY growth in Rec PAT led by
commissioning of 2x125MW units of Surat Lignite II to add incremental RoE.
􀂄 JP Power had an above average water availability from its snow fed rivers
driving its generation growth at Baspa II +3% and Vishnuprayag 13%YoY
during Apr-May. Consequently, bottom-line should be driven by availability of
incentives on secondary energy at its two HEP. Further, the start of first unit
at Karcham Wangtoo to add incremental RoE. However, we expect a 19%
fall in rec. profit (Parent) on higher interest cost on debt taken for equity
funding of new SPVs to minimize equity dilution.
􀂄 Adani Power and Reliance Infra remain our preferred picks in the sector
based on expansion in its generating capacity, distribution franchise and
reduction in T&D losses at its Delhi JVs and are likely to report inspiring 1Q
(APL). Maintain Buy on JP Power, as we believe the stock has yet to factorin
improving execution of its 12GW pipeline and U/P on NTPC on continued
delay in capex & coal mines. Neutral on Tata Power, Neyveli & GIPCL.