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India Equity Research Reports, IPO and Stock News
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Increasing blackouts
Power supply situation in the country has deteriorated significantly over
the last fortnight and nearly 51% of the coal based projects are operating
with less than 7 days stocks (33% have <4 days stock). Coal production
has been impacted by very heavy rains in Orissa and strikes in SCCL (due
to Telangana issue)/ Coal India. Most of the states are rationing power to
both domestic and industrial consumers. The government has announced
diversion of the e-auction coal volumes to the power sector as an interim
measure. Though the current coal situation seems to be temporary in
nature we expect tougher times for the power sector ahead given that
~14GW new domestic coal based capacity is likely to be commissioned
over next 12 months. We remain U-WT on the sector.
Coal inventories at all time low
q Out of 86 coal based power projects which are monitored on a daily basis, 29 power
stations are currently operating with less than 4 days coal stock and 44 with less
than 7 days stock.
q Coal India’s production is down 8% YoY in 2Q (despatches are down 5% YoY). The
coal despatch by road is likely to be impacted in 3Q as well given the damage to
haul roads because of the heavy rains.
q Employees of SCCL which contributes to nearly 10% of India’s coal production have
been on strike for nearly a month now in support of separate state of Telangana.
The strike has disrupted operations of power projects in South India and the
discoms have been forced to do “black outs” or buy very expensive merchant
power. Please see Aniruddha Dutta’s note “Neelu, nidhulu, niyamakalu” for more
details on Telangana issue.
Diversion of e-auction coal to power sector – a stop gap strategy
q Ministry of Coal has announced diversion of the e-auction volumes to the power
sector as an interim measure given the current precarious situation of the power
plants.
q However, there is no policy decision yet forthcoming which address the coal
production/shortage problems more holistically.
Coal supplies would remain a challenge in the medium term
q Coal India’s production is down 3.3% YoY at 1H end; despatches are up 0.1% YoY
– thanks to liquidation of ~23mt of coal stocks.
q To meet its target of 454mt despatch for FY12, the company needs to despatch
254mt in 2H – up 13% YoY – which looks like a very tough ask.
q With another ~14GW power capacity based on domestic coal expected to be
commissioned over the next 12 months the coal problem is likely to aggravate.
q Number of power projects is already operating sub-optimally and this number is
expected to go up unless there is dramatic turn around in the domestic coal
production.
Merchant tariffs would shoot up in the interim
q We are already seeing the impact of the coal shortfall in the recent spike in the
short term power prices which is sold via the exchanges.
q However, we are not very bullish on the merchant tariff and merchant power plays
as we expect their earnings profile to be very volatile. We also expect that
merchant power plays would find increasingly difficult to source domestic coal and
gas given the recent policy decisions to prioritize projects operating on regulated
business models for fuel allocation.
q JSPL because of its captive mines would be the biggest beneficiary followed by JSW
Energy, Lanco and Adani Power because of this spike in the merchant tariffs.
Remain U-WT on the sector. Prefer regulated plays over IPPs.
q We maintain our Underweight stance on the sector. Our biggest concern remains
the fuel availability/pricing. Please see our 10th October note “No quick fixes”.
q Power Grid remains the safest play in the sector followed by NTPC and Tata Power.
Avoid all others.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Increasing blackouts
Power supply situation in the country has deteriorated significantly over
the last fortnight and nearly 51% of the coal based projects are operating
with less than 7 days stocks (33% have <4 days stock). Coal production
has been impacted by very heavy rains in Orissa and strikes in SCCL (due
to Telangana issue)/ Coal India. Most of the states are rationing power to
both domestic and industrial consumers. The government has announced
diversion of the e-auction coal volumes to the power sector as an interim
measure. Though the current coal situation seems to be temporary in
nature we expect tougher times for the power sector ahead given that
~14GW new domestic coal based capacity is likely to be commissioned
over next 12 months. We remain U-WT on the sector.
Coal inventories at all time low
q Out of 86 coal based power projects which are monitored on a daily basis, 29 power
stations are currently operating with less than 4 days coal stock and 44 with less
than 7 days stock.
q Coal India’s production is down 8% YoY in 2Q (despatches are down 5% YoY). The
coal despatch by road is likely to be impacted in 3Q as well given the damage to
haul roads because of the heavy rains.
q Employees of SCCL which contributes to nearly 10% of India’s coal production have
been on strike for nearly a month now in support of separate state of Telangana.
The strike has disrupted operations of power projects in South India and the
discoms have been forced to do “black outs” or buy very expensive merchant
power. Please see Aniruddha Dutta’s note “Neelu, nidhulu, niyamakalu” for more
details on Telangana issue.
Diversion of e-auction coal to power sector – a stop gap strategy
q Ministry of Coal has announced diversion of the e-auction volumes to the power
sector as an interim measure given the current precarious situation of the power
plants.
q However, there is no policy decision yet forthcoming which address the coal
production/shortage problems more holistically.
Coal supplies would remain a challenge in the medium term
q Coal India’s production is down 3.3% YoY at 1H end; despatches are up 0.1% YoY
– thanks to liquidation of ~23mt of coal stocks.
q To meet its target of 454mt despatch for FY12, the company needs to despatch
254mt in 2H – up 13% YoY – which looks like a very tough ask.
q With another ~14GW power capacity based on domestic coal expected to be
commissioned over the next 12 months the coal problem is likely to aggravate.
q Number of power projects is already operating sub-optimally and this number is
expected to go up unless there is dramatic turn around in the domestic coal
production.
Merchant tariffs would shoot up in the interim
q We are already seeing the impact of the coal shortfall in the recent spike in the
short term power prices which is sold via the exchanges.
q However, we are not very bullish on the merchant tariff and merchant power plays
as we expect their earnings profile to be very volatile. We also expect that
merchant power plays would find increasingly difficult to source domestic coal and
gas given the recent policy decisions to prioritize projects operating on regulated
business models for fuel allocation.
q JSPL because of its captive mines would be the biggest beneficiary followed by JSW
Energy, Lanco and Adani Power because of this spike in the merchant tariffs.
Remain U-WT on the sector. Prefer regulated plays over IPPs.
q We maintain our Underweight stance on the sector. Our biggest concern remains
the fuel availability/pricing. Please see our 10th October note “No quick fixes”.
q Power Grid remains the safest play in the sector followed by NTPC and Tata Power.
Avoid all others.
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