Power Sector | Q3FY15E Results Preview | (CESC, Coal India, NHPC, NTPC, RPower, Power Grid & Tata Power):: IndiaNivesh

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 In Q3FY15, we expect power companies to show mixed performance. Benefit
of higher PLF would be offset by muted tariff.
 International coal prices were favorable sequentially for independent power
producers like Tata Power, JSW Energy and Adani power. These companies
have higher exposure on imported coal
 Average Imported coal prices for the quarter stood at USD66/ton, compared
to USD83/ton in Q3FY14 and USD77/ton Q2FY15
 Among PSUs, higher depreciation and interest cost coupled with the impact
of CERC norms 2014-19 is negative for NTPC. PGCIL would show strong
revenue growth on the back of higher capitalization of assets.
 Among IPP’s PAT growth of Tata power and Adani power would be suppressed
due to losses from Mundra Plant. Although CERC had allowed a tariff hike, it
has been referred back to the Appellate Tribunal for Electricity by the Supreme
Court and will be reviewed. As the final tariff award is pending, the company
is not booking the approved compensatory tariff. However, a correction in
international coal prices will help to reduce losses from Mundra project.
 JSW energy would be beneficiary of lower international coal prices, slightly
offset by lower short term power rates. Short term price down QoQ to Rs 3.5/
unit in Q3FY15 v/s Rs. 4/unit in Q2FY15.

Outlook
While the capacity addition and the private participation have been encouraging
developments in the sector, there have been several problems plaguing the sector.
The inadequate domestic fuel availability and the weak financial condition of the
state electricity boards (which own more than 90% of the distribution in the country)
are the key investment deterrents. Most private producers’ projects are jeopardized
due to non-availability of fuel, both coal and gas. Most power units are operating at
below optimal plant load factors, leading to bleeding profit and loss accounts and
debt-laden balance sheets.

We expect government to come up with policy measures to address the key issues
plaguing the growth of power sector and help kick-start the weak investment cycle.
We believe that gradual turnaround will be witnessed in Power sector in next 6-12
months on the back of major steps taken by the GoI such as increase in coal output
by Coal India, bid for coal mines, tariff hikes by state electricity boards (SEBs), and
the prospects for re-negotiations with power producers on power purchase
agreements (PPAs). However implementation of reforms would be a key challenge
in the power sector growth.
Top Pick
TOP Picks are, Tata power, Power Grid, RPower, Coal India and NTPC.

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