Power Plus: Dec 2014 : ICICI Securities

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Deficit declines amid arrival of winter season
Generation increased 10.2% YoY in November 2014 driven by growth
across the coal and gas segments, which was partially offset by lower
YoY generation across hydro and nuclear segments. Plant load factors
(PLFs) declined across all segments barring coal plants. Both base and
peak deficits declined MoM due to the onset of severe winter across the
country, especially in the northern region. Accordingly, merchant rates
declined significantly in November 2014. While the sector continues to
face constraints in terms of 1) fuel availability and pricing, 2) environment
clearances and 3) SEB’s financials, the recent initiatives taken by the
government like Coal Ordinance 2014, fixing of gas price, fast tracking of
project clearances, etc. may unblock the policy logjam for the sector. Top
picks in our coverage universe are NTPC and Power Grid.
• Generation: Generation increased 10.2% YoY in November 2014
driven by strong growth across the coal and gas segments, which
increased 14.3% and 5.7% YoY, respectively. This was, however,
partially offset by a 10.2% and 4.1% YoY decline in generation
across the hydro and nuclear segments, respectively
• Company performance: NTPC reported a flat 2.2% YoY increase in
generation as coal based plants reported a moderate 2.6% YoY
growth in generation, which was offset by 5.4% YoY decline across
gas-based generation plants. Generation at Tata Power improved
significantly (up 50.9% YoY). Strong YoY generation growth across
Reliance Infra (up 134.8%), Jaiprakash Power (up 27.4%) and Adani
Power (up 34.8%) reflects capacity addition and improved fuel
availability during the quarter. GMR continued to report strong
generation growth (up 118.0% YoY) due to improved gas supply
from ONGC. Generation across NHPC, SJVN also improved 12.9%,
8.8% YoY, respectively, fuelled by incremental YoY capacity
• PLF: Generation growth improved coal PLF by 96 bps to 63.1%.
However, it fell across all other sectors: gas (down 140 bps YoY),
hydro (down 367 bps YoY) & nuclear (down 344 bps YoY). Fall in
nuclear PLF was primarily due to high base effect YoY as generation
in November 2013 saw a sharp rise on better fuel availability.
Accordingly, overall industry PLF remained flat at 45.9% YoY
• Deficit: Both base and peak deficit declined to 3.4% and 3.7% vs.
4.3% and 4.5%, respectively, MoM due to lower power demand on
the onset of winter. Consequently, merchant rates declined 27.7%
MoM in November 2014 to | 3.0/unit while they were up 8.3% on an
YoY basis
• Fuel supply, prices: Coal inventory at stations improved slightly with
50 out of 103 coal-based plants facing sub-critical inventory levels
compare to 61 in October 2014. The inventory position was far better
YoY with only 29 plants facing sub-critical inventory levels in
November 2013. International coal prices were down 22.6% YoY to
US$66.1/tonne while on a landed cost basis, they were down 21.1%
YoY. Natural gas production improved slightly at 94 mmscmd vs. 92
mmscmd in October 2014
• Capacity: In November 2014, capacity addition was 363 MW vs. the
target of 275 MW. YTDFY15, capacity addition was 11,984 MW vs.
target of 10,064 MW. In the Eleventh Plan (2007-12), the industry
achieved 86% of targeted capacity, adding approximately 67.5 GW
(including ~17 GW renewable) vs. target of 78 GW. The government
has set a target of 88.5 GW for the Twelfth Plan. Currently, all-India
installed capacity stands at 255.0 GW