The PSU Divestment agenda of the Government has seen the power sector stocks shoot to the limelight. This saw a lot of power companies both in the public ( NHPC, NTPC FPO) and the private sector ( JSW Energy , Adani Power and Indiabulls Power) raising funds from the capital markets, in the Fiscal 2009-2010.
Hereunder is the performance of some of the Power Sector Stocks.
| | Percentage Returns | | | | Company | 1 month | 1 Year | P / E (x) | P/BV | | NTPC | 9.50% | 12% | 20 | 3.01 | | NHPC | 8.70% | 12.40% | 23 | 2.09 | | Tata Power | 7% | 55.70% | 28 | 3.57 | | Reliance Power | 5% | 38% | 130 | 2.57 | | Adani Power | 5% | 6.40% | 47 | 3.8 | | JSW Energy | 9 | 7.60% | 27 | 3.7 |
**As on 11th February 2010
Q3FY10 Financial Performance highlights for the significant players:
(Rs. in million) | Company | Net Sales (y-o-y % change ) | Operating Profit (y-o-y % change ) | PAT | Units Generated (MU) | Installed Capacity (MW) | | (y-o-y % change ) | | NTPC | 1,17,092 (1.3%) | 38,907 | 23,650 | 54,483 | 31,134 | -2.53% | -5% | | NHPC | 12,135 | 9,497 | 5,816 ** (Q3FY09 was a loss) | NA | 5,175 | -182% | -384% | | Tata Power | 15,278 (14%) | 3,254 | 1,479 | 3,851 | 2,975 | | -27% | -51% | | JSW Energy | 7,110 | 3,958 | 2048 | NA | 995 | | -22% | -110% | -73% |
The key issues affecting the power sector in addition to the regulatory issues are the availability of raw material, cost of fuel, execution of power projects and the availability of finance to fund the capital intensive projects.
NTPC:The stock had taken a hammering and its secondary market price inched towards its floor price of Rs. 201. NTPC has added only 4.2 GW of new generation capacity to date in the 11th Plan and expects to add another 18.2 GW in the next two years (81% of the 11th Plan target). Execution delays remains a cause of concern here, nevertheless good visibility into its revenues and backward integration into coal mining to secure fuel supplies outweigh the negatives at this counter.
NHPC : The price movement at this counter has been range-bound given that the IPO was overpriced. However, it has a huge opportunity to capitalize on the hydropower potential in India as only ~26% is exploited. The company has also tied up for long term PPA’s under the CERC tariff policy thus giving visibility to its earnings as the plants are guaranteed a fixed return of 15.5%. Thus all these factors make it an interesting stock at the current price.
Tata Power: On a y-o-y basis, generation has remained flat despite the full impact of 421 MW commissioned in FY09, 120 MW Power House 6 at Jamshedpur, 34 MW of wind capacity commissioned in Q1FY10 and 30 MW commissioned at Haldia in Sept 09. This is due the outage of Unit 5 and Unit 8 for a part of the quarter. With backward integration initiatives and increase in number of units being sold on merchant basis, the company’s margins are expected to improve.
JSW Energy: JSW Energy has 995 MW already operational and 2655 MW in construction and implementation phase while 7740 MW Development Phase. It also has majority sales from merchant power plants which helps margins. At present the valuations seem to have factored in the positives.
Given the presence of established players in the market and delays due to the long gestation period of the power projects, Reliance Power does not inspire with its power projects under construction. Adani Power appears to be marginally better off as it has been awarded a letter of intent by the Rajasthan Rajya Vidyut Utpadan Nigam Limited to supply 1,200MW under a long-term power purchase agreement. The power will be supplied from Adani Power’s under-development 1,320MW Kawai project near Kota in Rajasthan state. It has also secured low-cost fuel via coal linkages (31% of capacity) and contracts with parent (33%). However, given that capacities are still under construction, one may consider a wait and watch approach.
The potential of the power sector in India is indisputable given the huge deficit in demand and supply as current generation capacity is around 1,48,000 MW. The Government plans to add another 78,700 MW during the period 2007-12 and the peak load deficit stands at 12.6% in 2010 as against 11.9% last year. Companies with better revenue visibility, existing capacities in place make a strong case for long term investments.
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