Power sector: No cheer expected

Updated: Oct 14 2013, 17:36pm hrs
Reliance PowerA seasonally weak quarter for thermal power generation (AP)
The September quarter, a seasonally weak quarter for thermal power generation, saw depressed PLFs (plant load factors) for coal/gas based installed capacity owing to weak electricity demand growth, back down led by SEBs (state electricity boards), gas shortages and strong hydro generation growth after heavy rainfall this monsoon.

Spot rates averaged just R2.44/kWh on IEX (Indian Energy Exchange), the weakest in the last five years though bilateral contract rates remained stable. An extremely volatile USD/INR (high: R68.8/$, low: R59.0/$) averaged Rs62 in Sep-q (10.8% depreciation q-o-q), and is likely to adversely impact landed cost of fuel imports and F/X MTM (month-to-month) loss on overseas debt. Indonesian Ecocoal (4200Kcal) price was $42.1/ton in Sep-13, down 8% vs. Jun-13, and is likely to soften the impact of currency depreciation. September quarter results alone are unlikely to inspire much cheer, we think.

*NTPC (OW-overweight): Besides growth in a regulated equity base (20% y-o-y in FY13), we are banking on a sharp improvement in coal PAF (plant availability factor) to 86% in Q2FY14 vs. 80.14% in Sep-q last year to drive adjusted Q2FY14 PAT growth of 21% year-on-year. However, we are cautious of lower fuel savings/ loss of earnings due to deterioration in boiler SHR at lower PLF; accordingly, our PAT estimate of R24.75 bn for Sep-q is down 2% quarter-on-quarter.

*RPower (UW-underweight): We estimate Sep-q PAT growth of 10% q-o-q, driven by ramp up in PLF and a full quarter of operation for 300MW Butibori currently operating on a merchant basis. Relative to peers Rosa (1200MW) PLF has been healthy. However, P&L is not reflective of the true picture as Sasan UMPP's operational unit of 660MW will not be consolidated in financials. Post JP Chalasani's (CEO) recently announced exit from RPower, we would closely watch for any change in management commentary on pipeline projects. Material progress on pipeline projects is a key upside risk to our UW rating.

*Adani Power (UW): Higher fuel and capital costs are estimated to result in a loss of R8.1bn (ex-FX MTM loss) in Q2FY14 vs. adjusted loss of R7.1bn in Jun-q. Ramp up in domestic coal supply by CIL/Bunyu production are data points to watch. CERC (regulator) order on compensatory tariff for Mundra is still two months away.

*JSW Energy (OW): Bilateral rates have been healthy, but lower PLF at Vijaynagar & Ratnagiri and higher currency depreciation-led landed coal costs are likely to result in 27% q-o-q decline in PAT to R2.95bn in Sep-q.

*Jaiprakash Power Ventures (OW): Hydro generation at Karcham Wangtoo (1000MW) has been extremely healthy in Sep-q, coal based Bina's (500MW) performance is suboptimal owing to back down by MP. Q2FY14 will the first full quarter where flood-impacted Vishnuprayag (400MW) will be non-operational, we expect JPVL to recognise fixed charges in revenue for this project. We estimate Q2FY14 PAT of R2.79 bn, down 24% y-o-y. Fruition of potential sale of hydro assets is a means to address significant near-term cash-flow pressures.

*Tata Power (N-neutral): Sep-q is seasonally weak for coal production volume at KPC/Arutmin, Indo coal prices have weakened and Mundra UMPP continues to bleed. We estimate Q2FY14 Ebitda of R18.7 bn, down 10% q-o-q.

JP Morgan