Utilities: Consumption growth strong, base deficit widening
Motilal Oswal expect utility companies in their coverage (ex Coal India) to report aggregate 3QFY12 revenue growth of 28% y-o-y and PAT growth of 20% y-o-y, driven by capacity addition and strong merchant realization.
All-India generation up 10% y-o-y in Oct-Nov 2011: All India generation growth is led by growth in installed capacity base of coal plants (13GW addition y-o-y) and elevated PLF of hydro/nuclear plants (up 300bp/600bp y-o-y). YTDFY12, India has commissioned ~10.3GW capacity (~90% thermal), and has achieved ~62% of FY12 capacity addition target. In 11th Plan (FY08-12, till Nov-11), India has commissioned ~45GW projects. Revised CEA estimate is to add ~52GW during the Plan, implying targeted addition of 7GW (~1.7.GW/month) over remaining part of FY12.
Consumption growth strong; base deficit widening: Over Oct-Nov 2011, power demand in India grew 12% y-o-y (much higher 20% y-o-y in Nov-11). However, power availability (generation) grew only 8% during this period, widening the base deficit (Nov-11 base deficit stood at 10%). YTDFY12, base deficit for the sector stood at 7%, marginally lower than YTDFY11 base-deficit level of 9%.
Coal supply issues; higher demand supports ST power tariffs: Average spot rate at IEX was Rs4.9/unit over October to 3rd week of December 2011 (up 100% y-o-y and 61% q-o-q). Spike in near-term prices for shorter duration contracts was led by Telangana strike and lower coal availability. Motilal Oswal believe this sudden spurt in ST (short-term) rates is temporary and driven by various one-off factors concurring at the same time. Imported coal prices for 3QFY12 stood at USD107/ton, down 3% y-o-y and 8% q-o-q. USD over same period strengthened 11% y-o-y and 8% q-o-q.
Valuation and view: Power sector has seen significant valuation de-rating due to concerns over fuel supply, project viability, SEB finances, etc. In this environment, Motilal Oswal remain upbeat on companies which are relatively better positioned on these fronts. Their top picks are NTPC, Powergrid and Coal India.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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