Utilities sector results preview for Q3FY12: MOST

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Motilal Oswal has come with its December quarterly earning estimates for utilities sector. The research firm expects utility companies in their coverage (ex Coal India) to report aggregate 3QFY12 revenue growth of 28% YoY and PAT growth of 20% YoY, driven by capacity addition and strong merchant realization.

All-India generation up 10% YoY in Oct-Nov 2011: All India generation growth is led by growth in installed capacity base of coal plants (13GW addition YoY) and elevated PLF of hydro/nuclear plants (up 300bp/600bp YoY). 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% YoY (much higher 20% YoY 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 INR4.9/unit over October to 3rd week of December 2011 (up 100% YoY and 61% QoQ). Spike in near-term prices for shorter duration contracts was led by Telangana strike and lower coal availability. We 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% YoY and 8% QoQ. USD over same period strengthened 11% YoY and 8% QoQ.

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, we remain upbeat on companies which are relatively better positioned on these fronts. Our top picks are NTPC, Power Grid and Coal India.

Company	Sales			Net profit			Reco
	Dec. 11(Rs Mn)	Var. % YoY	Var. % QoQ	Dec. 11(Rs Mn)	Var. % YoY	Var. % QoQ
Adani Power	10,861	116.1	1.3	2,632	111.2	12.8	Neutral
CESC	9,420	0.3	-24.1	1,538	39.8	34.9	Buy
Coal India	160,630	26.6	22.2	37,650	42.5	45.2	Buy
JSW Energy	17,359	61.2	74.2	639	-53.6	LP	Neutral
Lanco Infra	31,267	100.2	64.9	921	-43.8	LP	Buy
NHPC	8,455	12.6	-57.3	2,690	48.1	-63.1	Neutral
NTPC	166,805	23.6	8.5	22,966	11.1	42.7	Buy
Power Grid	24,575	19.8	8.5	7,465	23.5	-1.8	Buy
PTC India	16,320	-7.1	-31.7	290	-23.4	-18.5	Buy
Reliance Infra	33,833	28.3	-14.4	4,441	139.3	-9.4	Buy
Tata Power	63,150	43.1	1.1	4,750	16	7.3	Neutral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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