Monthly Update
October 28, 2014
Sector View
Power Plus
Neutral
Reforms pick up pace…
Index Performance as on October 27, 2014
WTD
MTD
QTD
YTD
Sensex Index
0.9
0.8
0.8
28.6
Nifty Index
1.0
0.6
0.6
28.9
BSEPOWR Index
0.6
5.3
5.3
24.9
Stocks Performance
NTPC
WTD
MTD
QTD
YTD
MCap
(1.7)
4.3
4.3
10.6
119,600
Power Grid
0.8
4.3
4.3
44.5
73,792
Rel Power
(0.3)
1.7
1.7
(2.3)
20,057
Tata Power
0.2
6.1
6.1
1.1
23,828
NHPC Ltd
2.3
2.6
2.6
3.5
22,086
Reliance Infra.
(2.4)
(3.5)
(3.5)
34.1
14,854
Neyveli Lignite
1.7
2.1
2.1
37.4
14,160
Adani Power
(0.2)
3.2
3.2
15.0
12,866
JP Power Ven.
2.0
0.4
0.4
(33.9)
3,673
JSW Energy
(0.1)
6.1
6.1
36.6
12,300
Torrent Power
0.2
16.1
16.1
32.1
7,465
SJVN
2.9
(0.2)
(0.2)
10.7
9,411
Lanco Infratech
2.2
2.9
2.9
(8.5)
1,685
KSK Energy
(1.8)
Mcap: Market cap in | crore
(8.6)
(8.6)
(1.4)
2,745
Price movement
155
140
125
110
95
80
65
Oct-14
Aug-14
Apr-14
Jun-14
Feb-14
Oct-13
SENSEX
Dec-13
Jun-13
Aug-13
Apr-13
Feb-13
Dec-12
Oct-12
50
BSE POWER
Analyst’s name
Chirag Shah
[email protected]
Anuj Upadhyay
[email protected]
ICICI Securities Ltd. | Retail Equity Research
Generation increased only 3.8% YoY in September 2014 as growth
across hydro and nuclear segments was partially offset by lower YoY
generation across the gas segment while the coal segment reported
moderate growth due to a fall in demand. Plant load factors (PLFs)
declined across all segments barring hydro and nuclear plants. Both base
and peak deficits declined MoM due to lower demand. Accordingly, the
merchant rate declined in September 2014. While the sector continues to
face constraints in terms of 1) fuel availability and pricing, 2) environment
clearances and 3) SEB’s financials, the recent initiatives taken by the
government like Coal Ordinance 2014, fixation of gas price, fast tracking
of project clearances, etc. will unblock the policy logjams for the sector.
The top picks in our coverage universe are NTPC and Power Grid.
• Generation: Generation increased only 3.8% YoY in September 2014
due to a fall in power demand and lower coal supplies. Strong
growth across the hydro and nuclear segments, which increased
7.2% and 8.0% YoY, respectively, was partially offset by a 7.6% YoY
decline in generation across the gas segment. Generation across the
coal-based plant reported a moderate growth of 3.1% YoY.
• Company performance: NTPC reported a 0.6% YoY decline in
generation as both coal and gas-based plants reported a fall in
generation by 0.5% and 1.6% YoY, respectively. Generation at Tata
Power declined 4.5% YoY primarily due to disruption at its Trombay
unit, which halted operation for a day. Strong YoY generation growth
across Reliance Infra (up 104.3%) and Jaiprakash Power (up 35.2%)
reflects capacity addition. GMR continued to report strong generation
growth due to improved gas supply from ONGC
• PLF: Accordingly, PLF declined 585 bps across coal-based plants to
56.1% and by 389 bps YoY across gas-based plants to 19.4%.
However, the PLF increased 234 bps YoY to 54.1% across the hydro
segment and by 586 bps YoY to 78.8% across the nuclear segment
driven by better fuel supplies. Accordingly, the overall industry PLF
declined 325 bps YoY to 46.3% YoY
• Deficit: Both base and peak deficit deficits improved to 4.1% and
3.5% vs. 4.3% and 6.0%, respectively, MoM due to moderate
demand. However, YoY, base deficit deteriorated from 3.4% while
peak deficit stayed flat at 3.6%. Consequently, merchant rates
declined 7.1% MoM to | 4.2/unit while it was still up 37.2% YoY
• Fuel supply, prices: Coal inventory continues to remain at a critical
level with 56 out of 104 coal-based plants facing sub-critical inventory
levels due to fuel supply constraints due to logistic issue. The
inventory position was far better YoY with only 18 plants facing subcritical inventory levels in September 2013. International coal prices
were down 23.7% YoY to US$66.3/tonne while on a landed cost basis,
they were down 23.8% YoY. Natural gas production improved slightly
at 91 mmscmd vs. 88 mmscmd in August 2014
• Capacity: In September 2014, capacity addition was 660 MW vs. the
target of 1,420 MW. YTDFY15, capacity addition was 11,021 MW vs.
target of 7,299 MW. In the Eleventh Plan (2007-12), the industry
achieved 86% of targeted capacity, adding approximately 67.5 GW
(including approximately 17 GW renewable) vs. target of 78 GW. The
government has set a target of 88.5 GW for the Twelfth Plan.
Currently, all-India installed capacity stands at 254.1 GW
Exhibit 1: Monthly generation overview
600
530.5
482.0
500
All-India generation in September 2014 increased 3.8% YoY
to 85.8 billion units (BUs) while in YTDFY15 growth was at
400
(BUs)
10.0% YoY
300
200
85.8
82.7
September 14
September 13
100
0
YTDFY15
YTDFY14
Source: CEA, ICICIdirect.com Research
BUs: billion units
Exhibit 3: Hydro/nuclear generation and growth trend
41662
20,000
15
49996
(15)
7492
7290
5026
3462
(30)
3198
15,000
10,000
5,000
Sep-11
Sep-12
Sep-13
Coal generation
Coal growth
17744
14487
2680
2,035
40
30
20
10
(10)
(20)
(30)
16103
15024
2672
2545
Sep-12
Sep-13
2749
-
(45)
Sep-10
14,464
Growth (%)
39472
30
62677
60802
Generation (mn units)
80000
70000
60000
50000
40000
30000
20000
10000
0
Growth (%)
Generation (mn units)
Exhibit 2: Coal/gas generation and growth trend
Sep-10
Sep-14
Gas generation
Gas growth
Sep-11
Sep-14
Hydro generation
Nuclear generation
Hydro growth
Nuclear growth
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Exhibit 4: Fuel wise YoY growth in generation for September 2014
40
While growth across coal, hydro and nuclear-based power
20.9
20
generation increased 3.1%, 7.2% and 8.0% YoY,
respectively, it declined 7.6% across gas-based plants
7.2
(%)
3.1
8.0
3.8
0
(7.6)
(20)
(40)
Coal
Gas
Hydro
Nuclear
Imports
Total
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 2
Exhibit 5: Company wise performance
Company
NTPC
Tata Power
REL (ADAG)
GMR
GVK
Jindal
Adani
JSW
NHPC
SJVN
JP Power
Capacity (MW)
39,252
7,071
5,600
1,640
919
4,120
8,580
3,140
4,961
1,843
2,860
Generation Sept'14
(GWH)
YoY % growth
(Sept'14)
18,209
3,032
2,668
398
1,560
2,497
1,882
2,454
977
1,121
Generation
YTDFY15 (GWH)
(0.6)
(4.5)
104.3
1,218.1
(100.0)
9.3
(27.9)
11.2
29.0
13.6
35.2
% coal PLF (current % Gas PLF (current
month)
month)
% Growth
(YTDFY15)
118,809
20,309
15,786
2,000
188
8,446
25,812
11,133
15,873
6,140
7,006
5.2
3.0
126.7
476.8
(59.8)
20.6
37.4
6.6
21.2
11.7
20.1
72
58
65
52
40
82
56
% hydro PLF
(current month)
32
91
33
0
-
68
73
53
Source: CEA, ICICIdirect.com Research
•
NTPC reported a marginal decline across generation of 0.6% YoY
due to 0.5% YoY decline across coal based plants due to poor supply
of coal from CIL and lower demand. Generation across gas-based
plants declined 1.6% YoY
Generation across Tata Power’s plants declined 4.5% YoY as
generation was impacted due to a technical snag at its Trombay
plant, which impacted generation at one of its unit for a day. Growth
across Reliance Infra (up 104.3%) and Jaiprakash Power (up 35.2%)
reflects incremental capacity added over the past year
The gas-based plant of GMR continued to report strong generation
growth due to a lower YoY base and improved gas supply from
ONGC. However, GVK continues to suffer due to lack of gas supply
Generation across SJVN and NHPC plant improved 13.6% and 29.0%
YoY, respectively, due to higher YoY capacity
•
•
•
Plant load factor
PLFs declined across the coal and gas sectors while they
Exhibit 6: PLF across sectors
improved for the hydro and nuclear. Consequently, industry
PLF declined 325 bps YoY to 46.3% in September 2014 vs.
(%)
49.5% YoY
90
80
70
60
50
40
30
20
10
0
79
56
73
62
54
23
19
Coal
52
Gas
September 14
Nuclear
Hydro
September 13
Source: CEA, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 3
Exhibit 7: Historical sector wise PLF performance
90
80
71.9
70
64.8
64.8
60
81.5
78.4
77.1
69.2
80.0
65.9
59.7
62.2
62.6
50
(%)
45.2
40
30
39.7
38.8
35.1
38.8
24.5
33.0
20
21.9
10
0
FY11
FY12
COAL
FY13
HYDRO
GAS
FY14
NUCLEAR
YTDFY15
Source: Company, ICICIdirect.com Research
Inventory data
Coal inventory remained at a critical level for the fifth consecutive month
with 56 out of 104 coal-based plants facing sub-critical inventory levels
(57 plants in August 2014) primarily due to higher usage of coal across
thermal plants and fuel supply constraints. The inventory position was far
better YoY with only 18 plants facing sub-critical inventory levels in
September 2013.
49
32
28
21
20
18
17
29
30
28
25
18
12
12
12
56
47
28
20
22
Apr-14
32
30
Mar-14
35
Aug-13
35
42
Jul-13
40
43
Jun-13
(No of Power Plants)
50
57
Sep-14
60
Aug-14
Exhibit 8: Number of power plants facing sub-critical level of inventory (less than seven days)
10
Jul-14
Jun-14
May-14
Feb-14
Jan-14
Dec-13
Nov-13
Oct-13
Sep-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
0
Source: CEA, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 4
Exhibit 9: International coal price trend
140
International coal prices declined 23.7% YoY to $66.3/tonne
120
while even on a landed cost basis, prices declined 23.8%
100
($/tonne)
YoY factoring in rupee depreciation on a YoY basis
80
60
40
20
Jul-14
Source: CEA, ICICIdirect.com Research
Natural gas production improved slightly at 91 mmscmd in
Exhibit 10: Domestic natural gas production trend
September 2014 vs. 88 mmscmd MoM. However,
production was down 5.9% YoY from 95 mmscmd in
160
September 2013
140
(mmscmd)
120
100
80
60
40
20
Sep-14
Jun-14
Mar-14
Sep-13
Oct-13
Dec-13
Jun-13
Jul-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
0
Source: CEA, ICICIdirect.com Research
Power deficit
Both base and peak deficit deficits improved to 4.1% and
Exhibit 11: Peak and base deficits for September 2014
3.5% vs. 4.3% and 6.0%, respectively, MoM due to a fall in
16
demand. However, on a YoY basis, the base deficit
14
deteriorated from 3.4% while the peak deficit remained flat
12
at 3.6%
(%)
10
8
6
4
2
Base deficit
Jul-14
Apr-14
Jan-14
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
0
Peak deficit
Source: CEA, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 5
Oct-14
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
Oct-12
Jan-13
Jul-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Oct-10
Jan-11
Jul-10
Apr-10
Jan-10
Jul-09
Oct-09
0
Exhibit 12: Region wise deficit (%)
Sep-14
Region
Peak Deficit
(6.2)
(3.2)
(0.8)
(1.8)
(11.3)
(3.5)
Base Defict
(8.2)
(0.6)
(3.0)
(1.7)
(15.6)
(4.1)
Northern region
Western region
Southern region
Eastern Region
North Eastern region
All India
Source: CEA, ICICIdirect.com Research
Jammu & Kashmir faced the highest peak deficit followed
Exhibit 13: Top six power deficit states (%)
Sep-14
by Uttar Pradesh and Telangana
Major deficit states
Peak Deficit
(20.0)
(6.8)
(1.3)
(3.8)
(16.8)
(12.3)
Base Defict
(19.9)
(3.2)
(1.1)
(4.4)
(21.8)
(6.0)
J&K
Bihar
AP
Karnataka
UP
Telangana
Source: CEA, ICICIdirect.com Research
Capacity addition was 660 MW in September 2014
below the monthly target of 1,420 MW. YTDFY15, total
capacity addition was 11,021 MW vs. the target of 7,299
MW
Exhibit 14: Capacity addition in September 2014
YTDFY15
Sep-14
Target
Thermal
Hydro
Nuclear
RES
Total
Achieved
1,395
25
1,420
%
660
660
47
NA
NA
46
Target
Achieved
6,858
441
7,299
8,524
267
2,230
11,021
%
124
61
NA
151
Source: CEA, ICICIdirect.com Research
All-India installed capacity as on September 2014 was
~254.1 GW. Coal remains a key fuel for power generation
in India — 60.2% of total capacity is coal-based
Exhibit 15: Current capacity fuel mix
80
69.6
70
60
(%)
50
40
30
16.1
20
12.5
1.9
10
0
Thermal (Coal+gas)
Nuclear
Hydro
RES
Source: CEA, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 6
Exhibit 16: Growth of installed capacity since Sixth Five Year Plan
254.0
270
199.9
(GW)
220
170
132.3
120
70
105.0
85.8
42.6
63.6
20
End of 6th
plan
End of 7th
plan
End of 8th
plan
End of 9th
plan
End of 10th End of 11th
plan
plan
YTD 12th
plan
Source: CEA, ICICIdirect.com Research
Exhibit 17: Plan wise capacity addition/target
70
62.4
55.0
60
30
41.1
40.2
40
(%)
(GW)
50
30.5
22.2
20
21.4
16.4
19.1
21.2
9th plan
10th plan
10
0
7th plan
8th Plan
Target
Achievement
100
90
80
70
60
50
40
30
20
10
0
11th plan
% (RHS)
Source: CEA, ICICIdirect.com Research
Transmission capacity addition was 1,595 ckm in
September 2014 vs. target of 4,099 ckm for the month
Exhibit 18: Transmission line capacity addition in September 2014
Sep-14
Transmission Lines (ckm)
Target
Achieved
%
800 kV HVDC
-
-
500 kV HVDC
-
-
765 kV
1,495
-
400 kV
1,948
1,003
51
220 kV
656
592
90
4,099
1,595
39
Total
-
Source: CEA, ICICIdirect.com Research
In September 2014, 6,493 MVA of substation capacity was
added against the monthly target of 8,430 MVA
Exhibit 19: Substation capacity addition in September 2014
Sub Stations (MVA)
Target
Sep-14
Achieved
%
-
-
765 kV
4,500
3,000
400 kV
2,960
2,390
81
220 kV
970
1,103
114
8,430
6,493
77
500 kV HVDC
Total
67
Source: CEA, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 7
Monthly news round up
ICICI Securities Ltd. | Retail Equity Research
•
The President of India promulgated the Coal Mines (Special
Provisions) Ordinance 2014, which was cleared by the Union Cabinet
in the backdrop of the Supreme Court order that quashed the
allocation of 214 coal blocks to companies since 1993. The ordinance
is seen as a step towards energy sector reforms, which will allow
private companies to bid for captive use and allot mines to state and
central public sector undertakings like NTPC and SEBs based on the
government dispensation route. The ordinance also lays down the
provisions for public auction of mines by way of competitive bidding,
which will require bidders to pay a fee not exceeding | 5 crore.
Furthermore, all firms that had their coal blocks cancelled by the
Supreme Court last month, barring those convicted for offences
related to the allotment of mines, can bid in the e-auction after
paying an additional levy i.e. | 295/tonne penalty imposed by the
court on the usage of coal till date. With regard to the ordinance, the
government has allowed future allottees of captive coal blocks to
enter into agreements with a “prior allottee to own or utilise” the
equipment the prior allottee had acquired for purposes of coal
mining. Effectively, this will mean companies whose mines have
been taken away or cancelled can sell or lease or allow their
equipment to be used by new allottees. The proceeds of the coal
blocks won on the competitive bid would be transferred to the
respective states where the blocks are located. While the bidding is
likely to take place over the next three or four months, we believe
that with the amendment to the existing Coal Mineralisation Act in
the form of this special provision, the government has brought in a
much needed reform within the coal segment. This would not only
clear the earlier mess related to the coal scam but also bring in
necessary investment from serious players. This would lead to better
access to fuel availability for end use projects leading to higher PLF
•
The Ministry of New and Renewable Energy (MNRE) is preparing an
action plan to set up solar capacity of 1,00,000 MW by 2019. The
government is expediting the work by directing states to identify
suitable locations across terrains like deserts, wastelands, national
highways, river banks and even over canals. The proposed target is
five times the target designated under the Jawaharlal Nehru National
Solar Mission (JNNSM) while large solar projects along with solar
parks, micro grids and solar rooftops would all be a part of the
project. With the cost of installing solar capacity falling to | 6.5
crore/MW, the move is aimed at promoting clean energy in the
country, which would also lower the stress on thermal plants, which
are facing issues related to fuel supply constraints
•
The government has fixed the price of domestic natural gas price at
$5.6/mmbtu against the earlier proposal of $8.4, which was proposed
by the UPA government. The government now plans to pool the
imported LNG with the domestic availability and supply the same to
the ~16000 MW stranded gas based power plants. The government
will provide necessary subsidy to these plants to sell power to
discoms at | 5.5/kwh. Furthermore, the fixed price of the gas-based
plants has been increased to | 1.3 vs. the earlier allowance of | 0.85
paise, which would enable these plants to recover the escalated cost
of the projects, which was lying idle for want of gas. We expect the
move to improve the availability and, thus, PLF of these stations,
which would also prevent them from turning into NPAs by making
them viable
Page 8
ICICIdirect.com Coverage universe (Power)
Sector / Company
JP Power (JAIHYD)
NHPC (NHPC)
NTPC (NTPC)
Power Grid (POWGRI)
PTC India (POWTRA)
Tata Power (TATPOW)
EPS (|)
P/E (x)
CMP Target Rating M Cap
(|)
TP(|) Rating (| Cr)
FY14 FY15E FY16E FY14 FY15E FY16E
3,643
0.2
1.6
2.6 77.8
7.9
4.8
12
26 Hold
1.3
2.0
2.2 14.9
9.8
9.2
20
34 Buy 22,141
146
166 Buy 120,384 13.3 10.9 12.7 11.0 13.4 11.5
8.6 10.0 11.7 16.5 14.2 12.1
142
148 Buy 65,742
2,546
6.7
6.2
7.2 12.8 13.8 12.0
86
100 Buy
5.9
6.5
NA 15.0
13.6
89
107 Hold 23,936 (1.3)
EV/EBITDA (x)
RoCE (%)
FY14 FY15E FY16E FY14 FY15E FY16E
15.2
7.1
5.4 5.1
9.7 11.4
17.2 10.5
9.1 6.1
8.6
8.9
9.5
9.5
8.4 11.1
9.9 10.5
10.7 10.2
9.7 8.3
8.5
8.5
6.5
8.0
6.7 16.3 10.7 11.6
7.6
6.3
5.9 9.6 15.0 15.6
RoE (%)
FY14 FY15E FY16E
0.7
6.8 10.1
5.6
8.1
8.2
12.5
9.9 10.8
13.1 13.6 14.3
11.2
7.0
7.7
(2.4) 11.0 11.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 9
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
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]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
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