Power Sector Q4 Results Preview

After the historic order was passed by the CERC in the petition filed by Adani Power, the expectations from the sector have increased. In spite of a number of initiatives that the government took in FY13, the sector was not able to translate it into a superior financial performance. The results in the first three quarters of FY13 have shown that more time is required to translate price hikes into the operating performance of power companies.

In the first two months of the quarter, a total 2885 MW of thermal power capacity was added against a target of 2421 MW. Hydro power sector has also added a total of 110 MW capacity. Private power companies, however, have missed the power generation target despite an addition of capacity. Central sector thermal power companies have almost met the target. Hydro power sector, on the other hand, has again missed the generation target by wide margins indicating that the Q4 numbers may not be good. The only breather is capacity addition.

On the PLFs front, the central power companies have shown a better performance. Private sector power companies have reported about a 400 basis point decline in the PLFs, indicating another bad quarter for the sector.

As per the CEA document, Neyveli Lignite, CESC and Tata Power, among the major companies, have reported poor PLFs. GMR Energy and Lanco Infra have shown even poor responses which means that the quarter would be worst for these two companies. The power deficit situation has remained bad in all regions except for the western region, where it has come down significantly. In fact, the power deficit in southern Indian states has remained well above the national average.

The coal prices in Indonesia during the quarter have softened by 18-20% on a YoY basis but have increased by 5-6% on a sequential basis. In the other markets too, the prices have followed a similar trend. Although there is a YoY decline in coal prices, the rupee has remained weak during the year, and hence power companies will not get the benefit of the lower coal prices. This implies that the margins would continue remaining under pressure.

Meanwhile, on the UMPP front, Tata Power's Mundra UMPP (4,000 MW) has fully commissioned. Reliance Power's Sasan UMPP has also commissioned its first unit and has started commercial operations.

On the power trading front, the contract volumes have shown a 65% rise in the quarter on a YoY basis. The weighted average price too has remained between Rs 4.3 per unit to Rs 4.5 per unit which is better than the price in the corresponding quarter last fiscal. This means that the power trading companies may report a good set of numbers once again.

While there is some positive news in the sector, we believe that the implementation of the decision has not come in yet. This means that the sector may not show any significant improvement in the quarter. We again remain selective in the sector.

We remain positive on JSW Energy and PTC India. We would also add NTPC to the list since the stock has shown a fall in price and better results are expected from the company in Q4FY13.