Power - Earnings preview for quarter ended December 2011 - BRICS Research

Generation improves 9% yoy: Electricity generation was up 9% yoy in October-November 2011, driven by growth across all segments and helped by a favourable base. While coal generation rose 10%, hydro and nuclear generation went up by 15% and 14%, respectively. Although gas generation continued to face fuel-supply constraints, it rose 2% on a favourable base.

PLFs flat: Lower coal PLF was partially offset by higher hydro and nuclear PLF, resulting in a flat industry average for first two months of Q3. While coal availability issues and possible backdowns by SEBs pushed coal PLFs down 198bps yoy to 68.6% for October-November 2011, hydro and nuclear PLFs improved by 353bps and 593 bps yoy, to 36.3% and 74.4%.

Deficits up: On year, average base and peak deficit increased in October-November to 10% and 13%, respectively, vs. 7% and 9%.

Coal supply: Coal supply to power plants deteriorated. In October 47 plants, and 48 in November 2011 (out of 89) faced subcritical levels of inventory against 27 plants in both those months last year. Coal India has already revised its output targets for FY12 downward to 440mn tonnes from 452mn tonnes earlier.

Capacity addition below targets: YTD FY12, 11.9GW generation capacity has been added (including renewable capacity of 1.7GW) against target of 13.9GW, taking all-India installed capacity to 185.5GW. Under the Eleventh Plan, till date, total capacity addition is 46.6GW vs. targeted 77.3GW.

Valuations: Sector is likely to face severe fuel-supply constraints for both FY12 and FY13. NTPC faces lower risk as compared to private players given better assurance of coal supply from CIL and a low risk regulated model. Maintain Buy on NTPC and CESC on attractive valuations.

Source : Equity Bulls

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