power plus - i direct

8/13/2019 Power Plus - I Direct

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November 23 2013

ICICI Securities Ltd.|Retail Equity Research

Monthly Update

Generation impacted by lower demandGeneration growth was muted in October 2013 due to lower demand,resulting in flat ~1% YoY growth across coal based plants. This was,however, partially offset by higher growth across hydro and nuclearbased generation. Accordingly, PLFs improved across hydro and nuclearbut was down across thermal plants. Coal stocks deteriorated for thesecond consecutive month while lower power demand dented merchantrates. The sector, however, continues to face constraints in terms of 1)gas availability and pricing, 2) environment clearances, 3) SEBsfinancials and 4) rising debtors for utilities. The top pick in our coverageuniverse is CESC and NTPC (inexpensive valuation, risk averse regulatorybusiness model and strong capacity addition during FY14-15).

Generation: Generation was flat (up 1.5% YoY) in October 2013driven by lower power demand. Accordingly, generation across thecoal segment was flat at 0.7% YoY while the gas segment declined46.8% YoY. However, hydro-based generation increased 34.5% YoYas beneficiaries opted for cheap hydro power vs. coal based power.Nuclear based generation increased 13.5% on a lower YoY base

Company performance: NTPCs generation declined 8.5% YoYprimarily due to back down by SEBs, resulting in 3.4% decline acrosscoal-based plants while gas-based generation declined 55.7% YoY.The strong YoY growth in generation of Tata Power (+25.7%), AdaniPower (+60.8%) and Jindal reflects capacity addition while gas-based plants of GMR and GVK continued to suffer. While generationincreased YoY across hydro based plants of SJVN (+22.4%) andNHPC (+7.7%), it declined for JP Power due to close down of 400MW Vishnu Prayag plant.

PLF:PLF declined ~700 bps across coal-based plants to 61.1% whileit was down to 21.8% for gas based plants vs. 44.2% YoY. However,PLFs improved across the hydro segment to 42.7% (vs. 32.2% YoY)and nuclear segment to 89.7% (vs. 79.0% YoY). Accordingly,industry PLF witnessed 377 bps YoY fall to 47.6% in October 2013

Deficit:While energy deficit remained flat MoM at 3.5%, peak deficitsdeclined to 3.0% vs. 3.6% in September 2013. Hence, merchant ratesdeclined 27.5% MoM to | 2.7/unit. However, on a YoY basis, bothbase and peak deficit improved significantly from 9.1% and 8.8%,respectively, in October 2012. Merchant rate was down 10.8% YoY

Fuel supply prices: Coal inventory deteriorated significantly with 28out of 98 coal-based plants facing sub-critical inventory levels vs. 18plants MoM, as cyclone Phailin in the eastern coast impacted coalproduction and thus supply. The inventory position, however, wasbetter YoY with 49 plants in October 2012 facing sub-critical inventorylevels. International coal prices though were down 5.1% YoY toUS$82.1/tonne, on a landed cost basis it was up 9.3% YoY due torupee depreciation. Natural gas production continued its decliningtrend, with output for September 2013 down 14% YoY to 96 mmscmd

Capacity:In October 2013, capacity addition was 530 MW against thetargeted 250 MW. YTD FY14 capacity addition was 5,908 MW vs.target of 8,186 MW. In the Eleventh Plan (2007-12), the industryachieved 86% of targeted capacity, adding approximately 67.5 GW

(including approximately 17 GW renewable) vs. target of 78 GW. Thegovernment has set a target of 88.5 GW for the Twelfth Plan.Currently, all-India installed capacity stands at 229.3 GW

Power Plusctor View

utral

ex Performance as on Nov 22, 2013

WTD MTD QTD YTDnsex Index -0.9 -4.5 4.4 5.7

ty Index -1.0 -4.8 4.7 3.1

EPOWR Index -0.8 -2.2 3.1 -19.1

ocks Performance

WTD MTD QTD YTD

PC -1.3 1.2 2.3 0.3 124,383

iance Power -1.6 -4.5 3.6 -25.2 19,594

ta Power Co. -2.2 -6.4 -5.2 -29.4 18,249

PC Ltd -1.7 -2.2 -9.5 -27.8 21,772

iance Infra. -3.0 -7.1 8.3 -21.3 10,551

yveli Lignite -1.3 3.3 6.2 -23.8 9,907

ani Power 1.9 8.1 9.6 -42.7 10,152

Power Ven. -0.9 -5.9 14.1 -53.5 5,127

W Energy 4.5 2.1 8.3 -26.9 7,798

rrent Power -3.8 20.2 43.4 -46.9 4,781

VN 3.7 9.9 11.3 4.2 8,749

nco Infratech 0.0 -2.5 11.2 -56.1 1,433

SC -4.4 1.8 11.9 21.7 4,738

K Energy Ven. -1.6 -1.0 17.7 -1.7 2,217

MCap

ap: Market cap in | crore

ce movement

50

65

80

95

10

25

40

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

SENSEX BSE POWER

alysts name

hirag [email protected]

nuj [email protected]


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ICICI Securities Ltd. Retail Equity Research Page 2

Exhibit 1:Monthly generation overview

79.7 78.5

559.5534.1

0

100

200

300

400

500

600

October 13 October 12 YTDFY14 YTDFY13

(BUs)

Source: CEA, ICICIdirect.com Research

BUs: Billion Units

Exhibit 2:Fuel wise YoY growth in generation (%)

1.5

38.7

13.5

0.7

(46.8)

34.5

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50

Coal Gas Hydro Nuclear Imports Total

(%)


Exhibit 3:Company wise performanceCompany Capacity (MW)

Generation Oct 13

(GWH)

YoY % growth

(Oct'13)

Generation

YTDFY14 (GWH)

% Growth

(YTDFY14)

% coal PLF (current

month)

% Gas PLF (current

month)

% hydro PLF

(current month)

NTPC 38,602 17,887 (8.5) 129,439 (1.3) 72 29 -

Tata Power 7,071 3,463 25.7 22,943 66.1 66 101 -

REL (ADAG) 2,660 1,306 12.9 8,239 17.8 67 - -

GMR 940 23 (79.8) 547 (52.0) - 3 -

GVK 919 77 (66.8) 538 (73.6) - 12 -

CESC 1,285 765 (3.2) 5,624 (0.4) 82 - -

Jindal 2,320 1,260 42.3 8,268 37.8 74 - -

Adani 7,260 3,901 60.8 22,343 81.8 74 - -

JSW 3,140 1,498 (16.7) 11,996 (0.3) 65 - -

NHPC 4,294 1,391 7.7 14,358 (4.7) - - 44

SJVN 1,500 506 22.4 5,901 4.2 - - 46


All-India generation growth for October 2013 was flat (up

1.5% YoY) to 79.7 billion units (BUs) due to lower demand.

YTDFY14 growth was at 4.8% YoY

Growth across coal based generation was flat at 0.7% YoY,

due to lower demand and availability of cheap hydro

power. Accordingly, the hydro segment posted 34.5% YoY

growth while nuclear based generation increased 13.5% on

a lower YoY base. Gas based plants continue to

underperform due to fuel supply constraints


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NTPCs generation declined 8.5% YoY in October 2013 mainly due to3.4% YoY & 55.7% YoY decline across coal & gas based generation,respectively, as beneficiaries opted for cheap hydro power

Tata Power and Adani Power reported 32.1% YoY and 60.8% YoYgrowth, respectively, in generation mainly due to higher incrementalcapacity

Gas based plants of GMR and GVK continued to suffer due to fuelsupply constraints

Hydro-based plants of SJVN and NHPC reported higher generationdue to better reservoir level. However, generation declined for JPPower due to closedown of the 400 MW Vishnu Prayag plant, whichwas impacted by Uttarakhand floods

Plant load factor

Exhibit 4:PLF across sectors

61

22

90

43

68

44

79

32

0

10

20

30

40

50

60

7080

90

100

Coal Gas Nuclear Hydro

(%)

October 13 October 12


Inventory dataThe coal supply position deteriorated significantly in October 2013, with28 out of 98 coal based plants facing subcritical inventory levels vs. 18 inSeptember 2013. This was primarily due to increased generation acrosscoal based plants in September 2013, which led to destocking of stocksat the plant level. Also, the cyclone Phailin at the eastern coast impactedcoal production at mines and thus supply. The situation, however, wasfar better compared to 49 plants facing subcritical levels in October 2012.

Exhibit 5:Number of power plants facing sub-critical level of inventory (less than seven days)

47 4845

39

3432

29 2932 32

28

35

4943

3532 32

2118 17

12 12 12

18

28

0

10

20

30

40

50

60

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

(NoofPowerPlants)

Source: CEA, ICICIdirect.com Research,rect.com Research

PLFs declined across the coal and gas sectors while it

improved for the hydro and nuclear sector. Consequently,

the industry PLF declined to 47.6% in October 2013 vs.

51.4% YoY


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Exhibit 6:International coal price trend

0

20

40

60

80

100

120

140

160

180

200

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

($/tonn

e)


Exhibit 7:Domestic natural gas production trend

0

20

40

60

80

100

120

140

160

180

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

(mmscmd)


Power deficit

Exhibit 8:Peak and base deficit October 2013

0

2

4

6

8

10

12

14

16

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

(%)

Base deficit Peak deficit


International coal prices declined 5.1% YoY to $82.1/tonne.

However, on a landed cost basis, prices increased 9.3%

due to rupee depreciation

The declining trend in natural gas production continued,

with output for September 2013 down 14% YoY to 96

mmscmd

While the base deficit remained flat at 3.5%, peak deficit

declined to 3.0% vs. 3.6% in September 2013. However

energy and peak deficit is much lower compared to 9.1%

and 8.8% YoY, respectively


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Exhibit 13:Growth of installed capacity since Sixth Five Year Plan

42.6

63.6

85.8105.0

132.3

199.9

229.3

20

70

120

170

220

270

End of 6th

plan

End of 7th

plan

End of 8th

plan

End of 9th

plan

End of 10th

plan

End of 11th

plan

YTD 12th

plan

(GW

)


Exhibit 14:Plan wise capacity addition/target

40.2 41.1

62.4

16.419.1 21.2

22.2

30.5

21.4

55.0

0

10

20

30

40

50

60

70

7th plan 8th Plan 9th plan 10th plan 11th plan

(GW)

0

10

20

30

40

50

60

70

80

90

100

(%)

Target Achievement % (RHS)


Exhibit 15:Transmission line capacity addition in October 2013Transmission Lines (ckm) Target Achieved %

800 kV HVDC - - -

500 kV HVDC - - -

765 kV 1,098 98 9

400 kV 2,795 - -220 kV 763 313 41

Total 4,656 411 9

Oct-13


Exhibit 16:Substation capacity addition in October 2013Sub Stations (MVA) Target Achieved %

500 kV HVDC - - NA

765 kV - 6,000 NA

400 kV 315 945 300

220 kV 2,570 280 11

Total 2,885 7,225 250

Oct-13


Transmission capacity addition was 411 ckm in October2013 vs. target of 4,656 ckm for the month achieving 9% ofthe target

In October, 7,225 MVA of substation capacity was addedagainst the target of 2,885 MVA


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Monthly news round up

The Power Ministry has said that four out of the seven identified debtridden states that have so far opted for the financial restructuringpackage (FRP) provided by the Centre. Four states, Haryana, UttarPradesh, Rajasthan and Tamil Nadu have restructured their shortterm liabilities of around | 43,000 crore. Restructuring of the

remaining three states Bihar, Jharkhand and Karnataka is in theapproval stage and awaiting Cabinet nod. In order to avail FRP,discoms have agreed to a few conditions, which includerationalisation of tariff, reducing technical and commercial losses,timely release of subsidy by state governments, regular metering ofsupply and private participation in distribution

The Coal Ministry has decided to de-allocate 11 coal blocks afterconsidering the recommendation of Inter-Ministerial Group (IMG) forcoal. IMG had reviewed the performance of 30 coal blocks andrecommended de-allocation of 11 coal blocks. This includesRamchandi Promotional block, which was allotted to Jindal Steel and

Power (JSPL). Initially, owners of these blocks were issued a show-cause notice to explain the reason for delay in start of mining fromthese blocks. JSPL was asked to make a presentation with regard todelaying production from its four coal blocks -- AmarkundaMurgadangal in Jharkhand, Utkal B1 and Ramchandi Promotionalblock in Odisha and Urtan North in Madhya Pradesh. SAIL (forSitanala mine in Jharkhand) and NTPC (for Pakri Barwadih mine inJharkhand and Talaipalli mine in Chhattisgarh) was also asked tomake a presentation for mines allotted to it

The Maharashtra Government has approved Tata Powers MundraUMPP application for a tariff hike as recommended by the DeepakParekh panel. Maharashtras discom, Mahavitaran, had signed a PPAwith Mundra for 800 MW capacity at a levelised of | 2.26/Kwh for 25years. However, post the Indonesian coal fiasco the current rate hasbecome unviable and CERC has recommended a compensatory tariffhike for a limited period. The Maharashtra government has set a fewconditions such as: more than 80% supply of coal as per PPA,downward revision of tariff in case international prices fall, reductionin RoE and Interest rate (on debt taken by the Mundra SPV) as thesemeasures will lower the tariff rate. While the panel has recommendeda tariff hike of close to 56-59 paisa over the levelised tariff, theMaharashtra government is likely to allow only 35-39 paise hike,which would impact the discoms budget by ~| 300 crore. However,the state Cabinet has also provided Mahavitaran an option to cancel

the PPA without giving any compensation, in case the tariff ratebecomes unviable. Punjab and Haryana, receiving power fromMundra UMPP, have already opposed the CERCs approval to hiketariff and moved court against the decision


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ICICIdirect.com Coverage universe (Power)M Cap

(| Cr) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

JP Power(JAIHYD) 17 19 Hold 5,127 1.2 0.8 1.9 14.3 21.8 9.2 12.3 13.5 8.6 5.8 5.6 8.1 5.5 3.5 7.1

NHPC (NHPC) 18 19 Hold 21,763 1.8 2.1 2.2 9.7 8.4 8.2 11.4 11.4 9.0 6.9 7.6 7.6 8.1 8.8 8.6

NTPC (NTPC) 151 161 Buy 124,177 15.3 14.6 15.0 9.8 10.3 10.0 8.2 8.1 7.0 12.6 12.5 11.6 15.7 13.7 13.1

PTC India (POWTRA) 57 57 Hold 1,687 3.9 3.8 4.4 14.6 15.0 12.9 5.1 5.2 2.6 7.2 7.3 8.9 5.0 4.8 5.4

CESC (CESC) 380 435 Buy 4,741 38.3 40.6 46.1 9.9 9.3 8.2 8.5 8.5 7.0 8.3 7.7 8.9 9.1 9.5 10.1Tata Power (TATPOW) 77 84 Hold 18,273 0.0 2.0 2.8 NA 38.7 27.6 7.5 9.6 9.2 10.1 7.1 8.2 2.0 4.0 5.6

Sector / Company

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)

CMP RatingTarget

Source: Company, ICICIdirect.com Research,


9/9

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Sector view:

Over weight compared to index

Equal weight compared to index

Under weight compared to index

Index here refers to BSE 500

Pankaj Pandey Head Research [email protected] Research DeskICICI Securities Limited1st Floor, Akruti Trade Centre,Road No 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

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