August 2011

POWER PULSE

Peak deficit inching up; short-term benefit for merchant power

Analyst: Rohit Singh l 91-22-4322 1186 l rohit.singh@idbicapital.com

August 19, 2011

SECTOR UPDATE
Summary

Power Pulse
Peak deficit inching up; short-term benefit for merchant power

All India power generation reported a strong growth of 13% YoY/ 5% MoM at 74.1BUs for July 2011. Sector wise generation for central, state and private sector stood at 32.1BUs (10% YoY/ 6% MoM), 29.7BUs (14% YoY/ 2% MoM) and 11.4BUs (21% YoY/ 4% MoM) respectively. Generation from Hydro stations improved further to 13.9BUs (28% YoY/ 16% MoM) followed by Nuclear stations at 2.7BUs (62% YoY/ 9% MoM). Thermal stations generation picked up to 56.6BUs (9% YoY/ 1% MoM), led by better generation from private sector. Capacity addition stood 28% below target at 1660MW (+27% YoY/ -25% MoM). The weighted average sales price for power traded under bilateral agreements stood at Rs3.8/unit (-29% MoM). We maintain our cautious view on power sector as reforms are yet to pick up, fuel availability is proving an increasing concern and funding adds to woes. Moreover, poor paying ability of SEBs is bringing down the short term power prices. Hence, making imported coal based plants increasingly unattractive. Our top picks are TATA Power, CESC and PTC India in that order. We prefer TATA Power on account of integrated business model and value contribution from coal business. Table: Financial summary
Companies Adani Power CESC* JSW Energy PGCIL PTC* Tata Power NTPC# CMP (Rs) 86 299 53 102 70 1,042 174 TP (Rs) 106 401 73 111 114 1,407 NA Reco ACCUMULATE BUY HOLD ACCUMULATE BUY BUY NR Mkt Cap (Rs mn) 187,156 37,306 87,579 474,316 20,500 247,268 1437,185 Revenue (Rs mn) FY12E 71,673 40,514 69,597 107,142 110,462 247,393 632,281 FY13E 133,054 40,699 78,795 124,630 123,522 288,540 726,732 EBITDA (Rs mn) FY12E 46,496 10,440 25,043 88,821 1,611 58,647 164,780 85,203 10,441 28,430 103,318 2,222 69,151 195,287 EPS (Rs) 7.8 38.7 6.6 6.8 5.3 96.4 12.0 13.5 40.8 7.0 8.0 6.9 101.8 13.4 BVPS (Rs) FY12E 39.3 479.8 40.4 51.0 76.5 710.2 89.6 FY13E 52.8 515.8 46.0 57.0 80.2 814.0 98.2 P/B (x) FY12E 2.2 0.6 1.3 2.0 0.9 1.5 1.9 FY13E 1.6 0.6 1.2 1.8 0.9 1.3 1.8 RoE (%) FY12E 22.1 8.4 17.6 14.0 7.1 14.6 14.3 RoCE (%) FY12E 10.7 7.3 11.8 8.6 7.0 12.4 14.8 FY13E FY12E FY13E

* Standalone; # Bloomberg consensus; NR: Not rated Source: Bloomberg; IDBI Capital Research

Figure: Price performance

20
10 0

(%)

(10)
(20) (30)

(40)
(50)

1M

3M Adani Power

6M CESC JSW Energy

12M NTPC PGCIL PTC India

YTD Tata Power Nifty

Note: As on 18 August 2011 Source: Bloomberg; IDBI Capital Research

Rohit Singh +91-22-4322 1186 rohit.singh@idbicapital.com

Sector Update Power Pulse

Sector Outlook
Private players pick up
July power generation stood strong at 74.1BUs (+13% YoY/ +5% MoM), mainly led by 21% YoY generation growth by private sector. In addition to private sectors superior performance, state and central sector also contributed 29.7BUs (+14% YoY/ +2% MoM) and 32.1BUs (+10% YoY/ +6% MoM) respectively. Nuclear and Hydro power stations witnessed yet another good month, with a generation growth of 62% YoY and 28% YoY at 2.7BUs and 13.9BUs respectively. Moreover, thermal generating stations also grew by 9% YoY at 56.6BUs. Figure: Power generation by major energy sources
80,000 70,000 60,000 50,000
(MU)

Generation growth numbers strong at +13% YoY/ +5% MoM

40,000 30,000 20,000 10,000 0

Nov-09 Nov-10 Dec-10
Dec-09

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Thermal
Source: CEA; IDBI Capital Research

Hydro

Nuclear

Bhutan Import

Figure: Fuel wise power generation share

Nuclear 4%
Bhutan Import 1.2%

Figure: Sector wise power generation share

Hydro power further improves its share in all India generation to 19% in July 11 vs. 17% and 15% in June and May 11

Hydro 19% Thermal 76%

Private 16% Central 44% State 40%

Source: CEA; IDBI Capital Research

Source: CEA; IDBI Capital Research

NTPC reported 4% sequential growth in generation at 18.3BUs (flattish YoY). CESC reported 3% YoY and 4% MoM growth in its generation numbers at 823MUs. Whereas, TATA Power reported a decline of 15% YoY and 14% MoM in its generation numbers at 889MUs due to plant shut down. Adani Power improved its generation by 25% sequentially at 919MUs (+105% YoY, due to increased capacity base). JSW Energy reported 15% sequential growth in its gross generation numbers at 953MU (+55% YoY, due to increased capacity base). The company operated its Vijay Nagar plant (860MW) at a disappointing PLF of 51% due to low merchant demand. Barmer power plant (270MW) remained shut for the third month in a row (in absence of final order from RERC on tariff). Ratnagiri power plant (900MW) came in respite for the company, wherein JSWE operated at 92% PLF. NHPC, the largest hydro power player generated 2.4BUs (-1% YoY/ + 5% MoM) during July 11. SJVN and NHDC reported a generation of 1.1BUs (+11% YoY / -6% MoM) and 0.4BUs (+67%YoY/ +10% MoM) respectively.

Apr-11

Jul-11

Sector Update Power Pulse

Figure: Utilities (thermal) generation

1,500
1,200
(MU)

25,000
20,000 15,000 10,000
(MU)

900 600

300 0 May-10Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11Jun-11 Jul-11
CESC (LHS)
Source: CEA; IDBI Capital Research

5,000 0
TATA Power (LHS) NTPC (RHS)

Figure: IPP (thermal) generation

1,400 1,200 1,000
(MU)

800 600 400 200

0 Mar-10 Apr-10 May-10Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11Jun-11 Jul-11
Torrent Power
Source: CEA; IDBI Capital Research

Adani Power

Jindal Power

JSW Energy

Lanco Infratech

Figure: Utilities (hydro) generation

3,000 2,500 2,000
(MU)

1,500 1,000 500 0

May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11

NHDC
Source: CEA; IDBI Capital Research

NHPC

SJVNL

Sector Update Power Pulse

All India PLF declines to 71%

All India thermal PLF decreased 284bps MoM to 71% during July 11. Lower PLF was mainly caused by SEBs backing out from drawing scheduled thermal power on account of better availability of Hydro power. Central sector recorded highest PLF at 82% (-136bps YoY/ -72bps MoM), followed by private sector at 71% (-766bps YoY/ -89bps MoM) and state sector at 62% (+259bps YoY/ -506bps MoM). NTPC reported 148bps YoY dip (flat MoM) in PLF at 85% mainly due to lower PLF from gas based power stations. CESC recorded 239bps YoY/ 82bps MoM increase in PLF at 86%. Whereas, TATA Power witnessed a significant decline in PLF at 58% (-1,432bps YoY/ -1280 MoM) due to better availability of hydro power and lower demand for merchant power. All major private gencos improved their PLF for July 11. Jindal Power recorded the highest PLF at 101% (+1380 YoY/ +822 MoM), followed by Torrent Power 85% (-986bps YoY/ +308 MoM). Adani Power and JSW Energy recorded PLF at 62% (-2,913bps YoY/ +1,066bps MoM) and 63% (-918bps YoY/ -37bps MoM) respectively. Lanco Infratech witnessed the lowest PLF at 41% (-3,570bps YoY/ - 2,070bps MoM) due to poor performance at its Udupi Power plant. Figure: Sector wise PLF State sector PLF declines 506bps MoM
100 90

All India PLF declines by 284bps sequentially, up 28bps YoY

80

(%)
70 60 50 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Central
Source: CEA; IDBI Capital Research

State

Private IPP

All India

Figure: Utilities PLF TATA Power disappoints

100

90
80

(%)

70 60
50 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11
CESC
Source: CEA; IDBI Capital Research

NTPC

TATA Power

Sector Update Power Pulse

Figure: IPP PLF picks up

110

100 90
(%)

80
70 60

50 40
May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11
Jindal Power Torrent Power Adani Power JSW Energy

Jul-11

Lanco Infra

Source: CEA; IDBI Capital Research

Capacity addition below target due to no hydro capacity addition

Capacity addition stood 28% below target at 1660MW due to no capacity addition in hydro sector (vs. 292MW planned for July 11). Thermal capacity addition recorded 36% YoY growth at 1660MW (Sipat /660MW/NTPC + Durgapur/ 500MW/ DVC + Kodarma / 500MW/ DVC) against target capacity addition of 2010MW. The cumulative capacity addition for the first 4 months stood at 5169MW (29% of the target capacity addition for FY12). Figure: All India capacity addition
3,500 3,000 2,500 2,000 1,500 1,000 500 0
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11

No hydro capacity addition for the month; Thermal capacity addition achieves 83% of target

490 420 350 280 210 140 70 0

(MW)

(%)

Target (LHS)
Source: CEA; IDBI Capital Research

Achievement (LHS)

% achievement (RHS)

Peak deficit increases to ~10%

All India peak deficit increased by 120bps MoM at 9.9% on account of 250bps, 230bps and 220bps MoM increase in peaking power demand from N-Eastern, Western and Northern part of the country respectively. Western region recorded highest peak deficit at 14.8%, followed by N-Eastern, Northern, Southern and Eastern region at 13.5%, 10.4%, 7.2% and 6.7% respectively. Figure: Region wise peak deficit
0 (4)

All India peak deficit increases to 9.9% led by high demand from all part of country

(%)

(8) (12)
(16)

Nov-10

Dec-10
All India

Jan-11

Feb-11
Western

Mar-11
Southern

Apr-11
Eastern

May-11

Jun-11
Northern

Jul-11
N -Eastern

Source: CEA; IDBI Capital Research

Sector Update Power Pulse

Electricity prices come down for bilateral and exchanges trading

Short term trading improved 90bps MoM to 11.4% of the total power generation during June 11. Bilateral trading grew by 10% MoM to 4.3BUs (6.0% of the total generation). The volume traded under UI and power exchanges stood at 2.5BUs and 1.2BUs. The weighted average sales price for power traded under bilateral agreements stood at Rs3.8/unit (-29% MoM). Wherein, the electricity prices for UI and power exchanges stood at Rs3.3/unit (+3% MoM) and Rs3.0/unit (-44% MoM) respectively. (Source: Market Monitoring Cell Report June 11- CERC) Figure: Short term trading
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 Exchanges
Source: CERC; IDBI Capital Research

Short term power trading increases by 90bps MoM to 11.4% of total power generation for June 11

(MU)

May-11 UI

Jun-11 Bilateral

Figure: Merchant price movement

16
12
(Rs/kwh)

8
4

0
May-10 May-11
May-09

Feb-10 Mar-10

Feb-09 Mar-09

Feb-11 Mar-11

Jul-09

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Source: IEX; IDBI Capital Research

Aug-11

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Jun-10

Sector Update Power Pulse

Coal availability remains stagnant

Coal availability at the end of June 11 stood unchanged at 14MT vs. the normative requirement of 27MT. However, number of super critical stations (stock available < 4 days) reduced to 9 compared to 17 stations at the end of May 11. Whereas, number of subcritical stations (stock available < 7 days) remained 26 (sequentially unchanged). Figure: Coal availability trend
90 75 30 25 20
(MT)

No. of supercritical station decreases to 9 from 17 last month

60

(Nos)

45
30 15 0

15
10 5 0

May-09

May-11

Mar-09

Aug-09

Sep-09

Mar-11

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No. of station < 7 days stock

Normative requirement (RHS)
Source: CEA; IDBI Capital Research

No. of station < 4 days stock

Actual Stock (RHS)

Tota No. of thermal power stations

Global coal prices largely unchanged

Australian and South African thermal coal prices remained unchanged at US$119/MMT and US$117/MMT for August 11 (till date). While, Indonesian coal softened ~1% to US$111/MMT sequentially. Figure: Coal price movement
132 122

($/MT- FOB)

Global coal prices unchanged at high levels

112

102 92
82 72 62

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Jun-11

Jan-09

Jan-11

Aug-11

Australian Coal
Source: Bloomberg; IDBI Capital Research

South African Coal

Indonesian Coal

Sector Update Power Pulse

News Snippets (August 2011)

Korea East-West Power Co to join hands with Sahara India Power Corp in tariff-based bidding for UMPP projects Aug 18: Sahara India Power Corp Ltd will set up 6000MW power plants in India in association with Korea East-West Power Co Ltd. The companies have entered into an agreement to jointly participate in tariff-based bidding for ultra mega power projects and other opportunities in India to add up to a total capacity of 6000MW.
(Source: The Economic Times)

NTPC looks at retail distribution of power in industrial hubs, SEZs

Aug 16: NTPC is exploring opportunities for retail distribution of power in upcoming mega industrial parks and special economic zones (SEZs). It will do this through its wholly-owned subsidiary, NTPC Electric Supply Company Ltd (NESCL). It has a joint venture (JV) with the Kerala Industrial Infrastructure Development Corporation for retail distribution of power in industrial parks developed by the latter, SEZs and other industrial areas. The JV, KINESCO Power & Utilities Pvt Ltd, started its operations in February last year. (Source: Business Standard)

Uncertainty prevails over Bawana power plant

Aug 16: Notwithstanding an assurance by the Centre on supply of gas, the fate of the 1500MW Bawana power plant is still hanging in balance following refusal of Reliance Industries Ltd to supply fuel to the plant, built at a cost of Rs45 bn. Ending months of uncertainty, the Centre had earlier this month conveyed to Delhi Government that it will arrange gas for generation of 750MW of power out of the plant's total capacity of 1500MW. (Source: The Economic Times)

Five private companies to set up thermal power plants in Tamil Nadu

Aug 16: In a bid to address acute power shortage, the Tamil Nadu government has decided to encourage the private sector to set up units in the state and as part of this, five private companies have "cleared formalities" to establish thermal power plants. (Source: The Economic Times)

NTPC to move coal through inland waterways

Aug 12: NTPC Ltd has signed a pact with Inland Waterways Authority of India (IWAI) and Jindal ITF for transportation of imported coal from ports to the power major's 2100MW Farakka station in West Bengal, using the inland waterways. (Source: The Hindu Business Line)

MCL forays into power generation, invites EoI for 1600MW plant
Aug 12: Mahanadi Coalfields Ltd (MCL), a subsidiary of Coal India Ltd (CIL), has invited expression of interests from power plant developers to build a 2X 800 MW super critical thermal power plant in Sundergarh. (Source: Business Standard)

Lanco to invest Rs130 bn to develop mine, 2000MW power plant

Aug 4: Lanco Infratech would invest over Rs130 bn in setting up a 2000MW power plant and developing a coal block, which it has won through bidding from Maha Tamil Collieries, at Raigarh in Chhattishgarh. (Source: The Economic Times)

Sector Update Power Pulse

Notes

Vikrant Oak Head Institutional Equities Sonam H. Udasi Head Research Dealing

(91-22) 4322 1385 (91-22) 4322 1375 (91-22) 4322 1150

vikrant.oak@idbicapital.com sonam.udasi@idbicapital.com dealing@idbicapital.com

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