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UBS Investment Research
India Power Utilities
P ick up in merchant tariffs
Event: spot tariffs are at Rs6/unit for October
As per data from the Indian Energy Exchange, spot/merchant tariffs have risen to
Rs6.0/unit for October from Rs3.1/unit in September. Data for the first half of
October show that average spot tariffs have almost doubled compared to average
prices in H1 FY12. The primary reasons for this are lower output from thermal
plants due to coal shortages and the pick up in demand from the agriculture sector.
Impact: we believe such high tariffs are not sustainable
We think the increase in prices in the short-term market is driven by temporary
factors and is not sustainable. Due to high State Electricity Board (SEB) losses and
less willingness by SEBs to buy power at very high prices, spot tariffs have fallen
about 60% since FY09. We think the trend is unlikely to reverse so soon (see India
Power Utilities: Not all doom and gloom, published 25 August 2011).
Action: Jindal Steel & Power key beneficiary of high spot tariffs
Jindal Steel & Power’s (JSPL) subsidiary, Jindal Power, operates a very profitable
1,000MW captive-coal-based power plant that benefits from high merchant power
prices. Of the companies in our coverage universe, JSPL is most exposed to the
change in merchant tariffs. However, we are negative on JSPL due to execution
risk in capacity additions, as we have already seen significant delays. Please refer
to our initiation of coverage report Jindal Steel & Power: Risks outweigh strong
fundamentals, published 7 October 2011.
Our top picks: Power Grid and Lanco
We prefer Power Grid Corporation of India (Power Grid) and Lanco Infratech
(Lanco). We also have Buy ratings on National Thermal Power Corporation of
India (NTPC), Tata Power and Reliance Infrastructure. We upgraded our rating on
Reliance Power from Sell to Buy in August 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Power Utilities
P ick up in merchant tariffs
Event: spot tariffs are at Rs6/unit for October
As per data from the Indian Energy Exchange, spot/merchant tariffs have risen to
Rs6.0/unit for October from Rs3.1/unit in September. Data for the first half of
October show that average spot tariffs have almost doubled compared to average
prices in H1 FY12. The primary reasons for this are lower output from thermal
plants due to coal shortages and the pick up in demand from the agriculture sector.
Impact: we believe such high tariffs are not sustainable
We think the increase in prices in the short-term market is driven by temporary
factors and is not sustainable. Due to high State Electricity Board (SEB) losses and
less willingness by SEBs to buy power at very high prices, spot tariffs have fallen
about 60% since FY09. We think the trend is unlikely to reverse so soon (see India
Power Utilities: Not all doom and gloom, published 25 August 2011).
Action: Jindal Steel & Power key beneficiary of high spot tariffs
Jindal Steel & Power’s (JSPL) subsidiary, Jindal Power, operates a very profitable
1,000MW captive-coal-based power plant that benefits from high merchant power
prices. Of the companies in our coverage universe, JSPL is most exposed to the
change in merchant tariffs. However, we are negative on JSPL due to execution
risk in capacity additions, as we have already seen significant delays. Please refer
to our initiation of coverage report Jindal Steel & Power: Risks outweigh strong
fundamentals, published 7 October 2011.
Our top picks: Power Grid and Lanco
We prefer Power Grid Corporation of India (Power Grid) and Lanco Infratech
(Lanco). We also have Buy ratings on National Thermal Power Corporation of
India (NTPC), Tata Power and Reliance Infrastructure. We upgraded our rating on
Reliance Power from Sell to Buy in August 2011.
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