Positive on PTC, Tata Power: Prabhudas Lilladher

Prabhudas Lilladher has come out with its report on power sector. According to the research firm, in the near term, recoveries of principal and interest (on optimistic note) from SEBs will be positive for companies like PTC and Tata Power trading.

FY12 has been a fairly good year in terms of trading volumes growth. However, competition and under-recoveries have played a spoil spot. The following is a recap of the power trading scenario in India and its impact on earnings. Volume growth at 16.3% YoY: Volumes of Over the Counter (OTC)/Bilateral, UI and Exchanges together were up by 16.3% YoY, mainly attributed to growth in capacity and elections in five states, including UP. UP and Uttarakhand saw some buying of Power in the short term in February 2012 due to the elections. Tamil Nadu and Maharashtra continued to feature in the top five buyers, mainly due to capacity constraints in the respective regions. On seller’s side, JPL, Gujarat and Chhattisgarh continued to remain the top sellers; however, J&K has gone off the list of the top five sellers. Off late, IPPs have contributed to supply, where, along with JPL, Lanco’s Amarkantak and Karcham Wangtoo have also started selling power on the trading floor. The total volumes traded were close to 95bn units for FY12E. While the growth of OTC contracts was 33.7% YoY, the exchanges saw a hike of 9.9% YoY and UI dipped by 2.6% YoY. Short-term trading as % of generation was at 11%, marginally higher than 10% last year. PTC India, Tata Power Trading and NTPC Vidyut Vyapar Nigam were the top three traders in FY12. Average realization dips by 8‐10%: Realizations saw a dip on account of intense competition and higher supply. Thus, at lower prices, the volumes got absorbed. Average rates in OTC were Rs4.26/kWh (highest being in Jan-Feb2012), UI Rs4.2/ kWh and Exchanges at Rs3.5/ kWh. OTC contract for period of June-July 2012 are hovering around Rs3.8/ kWh. Trading margins and recoveries take a hit: Trading margins took a hit mainly on account of an increase in competition and bad financial condition of SEBs. Margins, which were close to 4.5-5 paisa in FY11, slipped to 3.8-4.3 paisa in FY12E taking a dip of 15% YoY. Similarly, Working capital requirements of the players soared as TN, UP, MP and BRPL delayed the payments. Off late, there have been some recoveries (Rs2-3bn approx.) from MP and TN. Our Take: We expect the energy trading business to continue to grow at a CAGR of 15% in the next two years on the back of 60GWs capacity addition, of which, at least 10-15% has been kept open. However, this will further intensify the competition and thus, margin pressures will continue. In the near term, recoveries of principal and interest (on optimistic note) from SEBs will be positive for companies like PTC and Tata Power Trading. Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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