Power Q3FY13 – Preview

The troubled power sector has shown some signs of revival over the last two quarters. The government too has taken some steps to restore investor's confidence in the sector (SEB Debt restructuring and FSA Pact signing). Following these developments, a few power stocks have seen some good momentum on the bourses. The issues of gas and coal availability are still haunting the sector. The last week of December saw nearly half of the total coal-based capacity facing a coal shortage. Gas-based plants have also seen a declining trend in their PLFs (plant load factor) in this year, so far.

Despite this weak coal supply situation, the power sector has performed well on the operational front during the quarter. As per data published by the Central Electricity Authority, total power generation saw a 4% rise for the two months of October and November of 2012 over the same period last year. Thermal and Nuclear power generation was up 8% each during the same period. Hydro power generation on the other hand declined by 20% due to a weaker monsoon. By implication this indicates towards a not-so-good performance to come from both the state owned hydro power plants during the quarter ended in December of 2012.

Over the last few months many states have hiked tariffs, which may show up in the results of power companies (NTPC, JSW Energy and CESC). 

The imported coal-based plants have also received a breather as coal prices have cooled off towards the end of the year. Prices of Jorong I (Indonesian coal category with GCV of 4400 Kcal/KG) declined by more than 25% during the quarter on a yearly basis. This will benefit companies like NTPC, Adani Power, Tata Power and JSW Energy. As gas-based power plants have hit another low in their PLFs we expect the performance of GMR Infra, GVK Power, Torrent Power and Lanco Infratech to remain under pressure.

Major Capacity Addition During December 2012 Quarter

Company Specific View

NPTC commissioned a total 1500MW of the capacity during the quarter hence one can expect better revenues during the quarter from this company. We also expect some clarity on its upcoming OFS price as well as the FSA pact with Coal India..

NHPC had reported a decline in its revenues in the September quarter due to a weak monsoon. The story is expected to continue during this quarter as well and hence expect a disappointing quarter for the company.

Tata Power acquired a 26% stake in Indonesian coal mine, PT Baramulti Suksessarana Tbk. It already has investments in the coal mines in Indonesia. Tata Power could report a rise in EBITDA margins in its Power business. The Coal volumes and realizations from coal mines would however be lower during the quarter due to lower coal prices. Some clarity is also expected on the Mundra UMPP as the company has filed a petition with the CERC to raise tariffs.

Adani Power will see margins remain under pressure due to technical issues at its Mundra plant. Due to these technical issues its PLFs were at 54% in the September quarter of 2012 compared to 75% in the September quarter of last fiscal. EBITDA may improve due to the lower coal prices in Indonesia which declined by over 25% during the quarter.

Firm merchant rates and higher volumes will help PTC India and JSW Energy to post better numbers in the December quarter.

During the September quarter, Reliance Power had reported a 121% jump in its topline due to higher generation from its Rosa plant as well as commissioning of the first unit of 300 MW of Butibori Power plant. The company is expected to come out with better numbers in this quarter due to the higher PLFs and addition of new capacity. Margins are expected to remain flat.

CESC's financial performance is expected to be good during the quarter. The tariff hikes in the Kolkata region would be a big positive for it. Some clarity about acquisition of Firstsource is awaited from the management.