Utilities: Fall in Indonesian coal price augurs well for JSW & Adani - AMBIT

Global coal prices have fallen by ~14-17% in CY12 as demand from China slowed. China, the largest consumer of Indonesian coal (it consumed ~95MT in CY12) is increasing its domestic coal production at lower costs and thereby reducing its dependence on imported coal. Consequently, profits for Indonesian miners like Bumi, Adro, Kideco, Byan etc fell in Q12013 in the range of ~38% to ~85% YoY. Also, fuel costs for imported coal based companies like Adani Power and JSW Energy came off in 4QFY13 results in the range of 4%-11% YoY.

With demand from China (in CY12 it consumed ~25% of Indonesian coal production) coming off, Indonesian coal prices are likely to fall. This augurs well for Adani Power and JSW Energy given their dependence on imported coal from Indonesia. This fall in fuel cost coupled with a likelihood of PPA tariff revisions for Adani Power and an increase in merchant realizations for JSW Energy in FY14 augurs well for them. We reiterate our BUY stance on Adani Power and JSW Energy.

Source : Equity Bulls

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