Power utilities: PLFs still under pressure ::JPMorgan

 All India thermal PLFs decline for a 6th month in a row to 61%. In August
thermal PLFs declined by a sharp ~550bps mom (~530bps yoy) to 61%. While
a pick-up in rains in Aug can partly explain the mom decline, the yoy decline
indicates: (1) insufficiency of fuel for the increased capacity and (2) continued
lack of demand for expensive power based on imported fuel. COAL Aug
offtake stood at 32.9MT up 8% yoy (while thermal capacity has increased by
17% yoy) but down 9% mom as rains picked up.

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 Captive coal production assures better and consistent PLFs. PLFs increased
for captive coal based projects i.e. JSW’s Barmer (73% vs 45%) and JSPL
(95% vs 87%). In particular JSPL’s PLF has been fairly steady at 85-90% in
previous months as compared to linkage coal based projects. The largest
customer of COAL i.e. NTPC reported a decline in PLF in Aug (72% vs 81%)
as despatches declined by 8% yoy. However NTPC fared better than IPPs -
Lanco’s Amarkantak (66% PLF), Anpara (27%), TPWR’s Maithon (53% - lack
of railway siding), CLP’s Jhajjar (30%).
 JSW Energy leads the pack amongst imported coal based plants, rest
hampered by unremunerative PPAs. With the exception of JSW Energy
(>90% PLF at Vijaynagar & Ratnagiri since 5 months), PLF at other imported
coal based plants i.e. Adani’s Mundra (41% in Aug), TPWR’s Mundra (33%),
Lanco’s Udupi (37%), Essar's Salaya (33%) and RPWR’s Rosa (73%) have
been sub-optimal. In particular Adani, TPWR and Essar are burdened with PPAs
that don’t allow pass thru for fuel cost. Lanco's Udupi although being a
regulated plant received a tariff order at the end of Aug ‘12 for a full pass of the
imported coal cost and fixed cost of Rs1.4/unit. In our view, JSW Energy will
report better earnings than other IPPs in the near term while imported coal
costs remain under pressure. South Africa’s Richard Bay Index is down 16%
since Mar ’12 and Indonesia’s Ecocoal Index is down 21% in USD terms, while
INR depreciated by 9%.
 Gas PLFs continue their decline in August. PLFs for gas plants of RELI,
Essar, GVK, GMR, Torrent and Lanco were all in the 23-50% range. PLFs for
NTPC’s gas plants which were holding up above 60% also declined to 58% in
August. While gas based plants can blend naptha/liquid fuel, there is no demand
for power with tariffs of >Rs10/unit from SEBs.
 Hydro power production declined by 12% yoy in August, despite capacity
increase of 3% yoy. YTD hydro production is down 9%. However compared to
July, August registered an 18% mom growth in power production as the
monsoon season gained momentum. On average, JPVL (Neutral) reported
>100% PLF in Aug, but there was a 17% mom dip in production at Karcham
Wangtoo (97% PLF vs 117% in July). Lanco’s (UW) recently commissioned
Budhil plant (70MW) reported a 79% PLF.