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Indian Power - coal and FX
More downgrades from upgrades
Event
Macquarie has upgraded its thermal coal price forecasts and downgraded INR
against USD. This is typcially bad news for Indian power, dominated by
domestic revenues (power sales) while costs can be exposed to imported coal
prices, denominated in USD. We downgrade our earnings forecasts for JSW
Energy (JSW IN, Underperform, TP 45), Adani Power (ADANI IN, Neutral, TP
79) and Tata Power (TPWR IN, Outperform, TP 1190).
Impact
Bullish coal price outlook… solid demand from China, Japan and Germany
should ensure that thermal coal remains very defensive in the current
uncertain macro-driven uncertainty, particularly into the early stages of next
year. To be sure, it seems that demand will have to take an incredibly drastic
turn for the worse to undermine prices. While the risk of that is not zero, it
seems unlikely that we will see a 2008 type of event that is needed to
undermine the robust outlook for thermal coal.
JSW Energy and Adani downgraded on higher costs… in our view both
Adani and JSW Energy will have increasing requirement to import coal from
seaborne markets over FY12-14. While some power traders are pointing to
stronger 4Q12 merchant pricing (it’s usually seasonally stronger anyway),
we’re still not seeing sustainable cost-push impact to merchant pricing.
Therefore rising thermal coal prices have seen margins further squeezed.
Tata Power a net beneficiary from coal, but we’ve sliced Mundra: despite
our coal price upgrades, we apply much higher fuel costs at Mundra and
subsequently have reduced our price target from Rs.1553 to Rs.1190. Our
earnings changes are more volatile reflecting thermal coal price upgrades and
INR depreciation. However, while there may be few near term catalysts,
below Rs.1000/share we do see longer term value upside (+20%).
Outlook
Retain Underweight Utilities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Power - coal and FX
More downgrades from upgrades
Event
Macquarie has upgraded its thermal coal price forecasts and downgraded INR
against USD. This is typcially bad news for Indian power, dominated by
domestic revenues (power sales) while costs can be exposed to imported coal
prices, denominated in USD. We downgrade our earnings forecasts for JSW
Energy (JSW IN, Underperform, TP 45), Adani Power (ADANI IN, Neutral, TP
79) and Tata Power (TPWR IN, Outperform, TP 1190).
Impact
Bullish coal price outlook… solid demand from China, Japan and Germany
should ensure that thermal coal remains very defensive in the current
uncertain macro-driven uncertainty, particularly into the early stages of next
year. To be sure, it seems that demand will have to take an incredibly drastic
turn for the worse to undermine prices. While the risk of that is not zero, it
seems unlikely that we will see a 2008 type of event that is needed to
undermine the robust outlook for thermal coal.
JSW Energy and Adani downgraded on higher costs… in our view both
Adani and JSW Energy will have increasing requirement to import coal from
seaborne markets over FY12-14. While some power traders are pointing to
stronger 4Q12 merchant pricing (it’s usually seasonally stronger anyway),
we’re still not seeing sustainable cost-push impact to merchant pricing.
Therefore rising thermal coal prices have seen margins further squeezed.
Tata Power a net beneficiary from coal, but we’ve sliced Mundra: despite
our coal price upgrades, we apply much higher fuel costs at Mundra and
subsequently have reduced our price target from Rs.1553 to Rs.1190. Our
earnings changes are more volatile reflecting thermal coal price upgrades and
INR depreciation. However, while there may be few near term catalysts,
below Rs.1000/share we do see longer term value upside (+20%).
Outlook
Retain Underweight Utilities.
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