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India utilities - merchant prices
3Q12 pricing still sub Rs4/kWh, traders
seeing some light from the south
Event
The CERC forward curve for August suggests weak pricing will extend into
3Q12, averaging around Rs3.69/kWh in September–November, while power
traders are seeing stronger demand surfacing in 4Q12 from southern states.
Heading into 2Q12, we are happy to have greater exposure to those at the
lower end of the cost curve with lower merchant exposure:
⇒ Jindal Steel and Power +5% FY13E EPS for +10% power price change
(JSP IN, Rs540.25, Outperform, TP Rs924)
⇒ Adani Power +25% FY13E EPS (ADANI IN, Rs88.80, Neutral, TP Rs94)
⇒ JSW Energy +30% FY13E EPS (JSW IN, Rs59.45, Underperform, TP
Rs55)
Impact
Stronger volumes in August, flat average three-month price: August saw
a 24% increase in reported contract volume from 1,249MU in July to 1,548MU
in August at an average price of Rs3.69/kWh for the next three months. 61%
of power contracted was above Rs4/kWh, far above 22% and 20% in July and
June, respectively, which was a positive, in our view. Of the 40 contracts in
August, 30% were Instinct Infra and Power (intermediatary), 28% JSW Energy
and 25% NTPC.
When the clouds clear.... 4Q12 optimism from power traders: Our
channel checks suggest that stronger contract pricing is being negotiated at
around Rs4.20-4.30/kWh starting towards mid/end 3Q12 (3Q11: Rs3.95/kWh)
and 4Q12 (4Q11: Rs4.30/kWh) driven by southern region demand. Our
industry contacts also suggest that one particular 22-month, 500MW contract
at Rs4.26/kWh ex-bar is close to being signed with Karnataka, which could
provide some optimism to the market. There is some market talk that UP is
starting to slip on payments. Such contract wins could start giving some
support to beaten down power stocks with pricing exposure, not
overshadowed by extremely aggressive debt positions and ability to get coal.
We would prefer to wait for poor 2Q12 realisations to flow through. Based on
our estimates, the most positively leveraged are: JSW Energy (+30% FY13E
EPS for +10% power price change) followed by Adani Power (+25% FY13E
EPS) and Jindal Steel and Power (+5% FY13E EPS).
Merchant price flat in July, with the weighted bilateral merchant price in July
flat at Rs3.90/kWh, close to the Rs3.82/kWh reported last month. Seasonally,
the bilateral price usually remains flat in 2Q and we expect low prices to
continue over 2Q12, in line with what is being reflected on the CERC forward
curve. As a reminder, the quoted forward prices include both ex bus-bar and
delivered power prices.
Outlook
Retain Underweight Utilities in 2Q12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India utilities - merchant prices
3Q12 pricing still sub Rs4/kWh, traders
seeing some light from the south
Event
The CERC forward curve for August suggests weak pricing will extend into
3Q12, averaging around Rs3.69/kWh in September–November, while power
traders are seeing stronger demand surfacing in 4Q12 from southern states.
Heading into 2Q12, we are happy to have greater exposure to those at the
lower end of the cost curve with lower merchant exposure:
⇒ Jindal Steel and Power +5% FY13E EPS for +10% power price change
(JSP IN, Rs540.25, Outperform, TP Rs924)
⇒ Adani Power +25% FY13E EPS (ADANI IN, Rs88.80, Neutral, TP Rs94)
⇒ JSW Energy +30% FY13E EPS (JSW IN, Rs59.45, Underperform, TP
Rs55)
Impact
Stronger volumes in August, flat average three-month price: August saw
a 24% increase in reported contract volume from 1,249MU in July to 1,548MU
in August at an average price of Rs3.69/kWh for the next three months. 61%
of power contracted was above Rs4/kWh, far above 22% and 20% in July and
June, respectively, which was a positive, in our view. Of the 40 contracts in
August, 30% were Instinct Infra and Power (intermediatary), 28% JSW Energy
and 25% NTPC.
When the clouds clear.... 4Q12 optimism from power traders: Our
channel checks suggest that stronger contract pricing is being negotiated at
around Rs4.20-4.30/kWh starting towards mid/end 3Q12 (3Q11: Rs3.95/kWh)
and 4Q12 (4Q11: Rs4.30/kWh) driven by southern region demand. Our
industry contacts also suggest that one particular 22-month, 500MW contract
at Rs4.26/kWh ex-bar is close to being signed with Karnataka, which could
provide some optimism to the market. There is some market talk that UP is
starting to slip on payments. Such contract wins could start giving some
support to beaten down power stocks with pricing exposure, not
overshadowed by extremely aggressive debt positions and ability to get coal.
We would prefer to wait for poor 2Q12 realisations to flow through. Based on
our estimates, the most positively leveraged are: JSW Energy (+30% FY13E
EPS for +10% power price change) followed by Adani Power (+25% FY13E
EPS) and Jindal Steel and Power (+5% FY13E EPS).
Merchant price flat in July, with the weighted bilateral merchant price in July
flat at Rs3.90/kWh, close to the Rs3.82/kWh reported last month. Seasonally,
the bilateral price usually remains flat in 2Q and we expect low prices to
continue over 2Q12, in line with what is being reflected on the CERC forward
curve. As a reminder, the quoted forward prices include both ex bus-bar and
delivered power prices.
Outlook
Retain Underweight Utilities in 2Q12.
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