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India Equity Research Reports, IPO and Stock News
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�� Fuel supply and demand pressures to
hurt operating margins in 2Q
�� Capex on transmission on track, but
long-term generation capex slowing
�� Bank lending squeeze to cut both ways.
Our top picks: Powergrid (among largecaps)
and PTC (among mid-caps)
Generation projects facing fuel crunch and demand
pressure. Companies under our coverage are expected to
show c10% lower plant load factor (PLF) than last year,
resulting in flat generation. We expect Powergrid and PTC
to report above-consensus numbers (by 4% and 15%,
respectively), while at the sector level, our net profit
estimates are 5% below consensus due to our expectation of
low PLF (see exhibit 1). In our view, fuel and demand
pressures are likely to continue for some time. Nationwide
thermal generation was 159BU in 2QFY12, up 5% y-o-y
despite 12% y-o-y capacity addition. That said, the weakness
is unlikely to affect Power Grid’s capex or PTC’s volumes.
Capacity additions and capex. While generation capacity is
expected to increase by 5.6GW in 2Q, we have not seen any
new private sector power equipment orders placed; hence,
we see a slowdown in generation capex in the long term.
Due to the lag effect, it would not affect transmission capex
which is inadequate. We thus expect Power Grid to continue
to incur capex over the next 3-5 years, driving its growth.
Consumer tariff revisions in 14 states over the past six
months are positive, but more needs to be done as we
expect the long-term power purchase costs of states to
increase significantly in the next few years as prices
discovered under Case I bidding continue to go up.
Credit squeeze on State Electricity Boards (SEBs) will cut
both ways. On the one hand, it may lead to delays in payments
by SEBs to utility companies and lower power off-take. On the
other, the financial health of SEBs should improve.
Valuation of utility stocks is attractive, trading at a PB
range of 0.7-2.0x on 12-month fwd earnings, which is 30-
35% below the three-year historical mean . We
expect investors to begin accumulating the power stocks
with strong results: namely Power Grid (OW) among largecaps,
and PTC and CESC (both rated OW) among mid-caps.
Click link below for other company reports:
Click link above for other company reports:
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Fuel supply and demand pressures to
hurt operating margins in 2Q
�� Capex on transmission on track, but
long-term generation capex slowing
�� Bank lending squeeze to cut both ways.
Our top picks: Powergrid (among largecaps)
and PTC (among mid-caps)
Generation projects facing fuel crunch and demand
pressure. Companies under our coverage are expected to
show c10% lower plant load factor (PLF) than last year,
resulting in flat generation. We expect Powergrid and PTC
to report above-consensus numbers (by 4% and 15%,
respectively), while at the sector level, our net profit
estimates are 5% below consensus due to our expectation of
low PLF (see exhibit 1). In our view, fuel and demand
pressures are likely to continue for some time. Nationwide
thermal generation was 159BU in 2QFY12, up 5% y-o-y
despite 12% y-o-y capacity addition. That said, the weakness
is unlikely to affect Power Grid’s capex or PTC’s volumes.
Capacity additions and capex. While generation capacity is
expected to increase by 5.6GW in 2Q, we have not seen any
new private sector power equipment orders placed; hence,
we see a slowdown in generation capex in the long term.
Due to the lag effect, it would not affect transmission capex
which is inadequate. We thus expect Power Grid to continue
to incur capex over the next 3-5 years, driving its growth.
Consumer tariff revisions in 14 states over the past six
months are positive, but more needs to be done as we
expect the long-term power purchase costs of states to
increase significantly in the next few years as prices
discovered under Case I bidding continue to go up.
Credit squeeze on State Electricity Boards (SEBs) will cut
both ways. On the one hand, it may lead to delays in payments
by SEBs to utility companies and lower power off-take. On the
other, the financial health of SEBs should improve.
Valuation of utility stocks is attractive, trading at a PB
range of 0.7-2.0x on 12-month fwd earnings, which is 30-
35% below the three-year historical mean . We
expect investors to begin accumulating the power stocks
with strong results: namely Power Grid (OW) among largecaps,
and PTC and CESC (both rated OW) among mid-caps.
Click link below for other company reports:
BHEL - Better execution and stable margins to drive net profit growth
Power Grid- Capex and capacity addition going strong
Tata Power - Coal business to continue to drive growth in 2Q
PTC -Strong quarter on the back of volume growth and margin expansion
CESC - Power distribution business in Kolkata to provide steady income
Click link above for other company reports:
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