Published on 1/03/2017 3:45:44 PM | Source:  India Nivesh Securities Ltd

Sector Update Power Sector - India Nivesh Sec

Posted in Broking Firm Views - Sector Report| #Power Sector #IndiaNivesh Securities Ltd #Sector Report

Sector Review

* The power sector continued to witness weak demand growth during Q3FY17 with YoY growth remaining at 1% same as it was in Q2FY17. This was despite power generation showing an improvement in YoY growth to 5.1% in Q3FY17 against 1.4% YoY growth in Q2FY17.

* The quarter saw subdued merchant power prices at ~Rs 2.5 per unit with YoY growth remaining flat. Weak power demand had also contributed in keeping the merchant power rates at a low level of ~Rs 2.5 per unit, which in most cases is less than the average cost of producing power. This has rendered significant amount of untied generation capacity unviable.


Company Review

* Among the companies under our coverage, Power Grid’s Q3FY17 numbers were mostly in line with our estimates. Revenue was up 23.5% YoY to Rs 66.3bn, helped by strong growth in its transmission, consultancy and telecom businesses. EBITDA grew 24.5% YoY to Rs 59.5bn, while EBITDA margin expanded 71bps YoY to 89.9%. PAT grew by 20.2% YoY to Rs 19.3bn helped by higher EBITDA and strong revenue growth. Power Grid capitalised cumulative Rs 159.7bn for the 9MFY17, with rising capitalisation for each successive quarters. Even in the current quarter of Q4FY17, for the month of January 2017 the company achieved Rs 47.3bn capitalisationwhich is ~70% of its third quarter (Q3FY17) capitalisation.

* NTPC’s Q3FY17 numbers were slightly ahead of our estimates. Revenue had shown 10.9% YoY growth at Rs 193.9bn due to additional capacities as well as higher generation. Power generation was slightly higher YoY (61.4BUs in Q3FY17 against 60.8BUs in Q3FY16) despite lower PLF. PAT stood at Rs 24.7bn, a decline of 7.5% YoY despite higher revenue and EBITDA mainly due to higher interest expenses which climbed 7.9% YoY. NTPC has commercialized 825MW of capacity on a consolidated basis in 9MFY17 (including 325MW at Patratu) against its target of 5648MW for FY17, thereby pushing significant portion of the capacity to FY18.

* As far as Reliance Power is concerned, results were below our estimates, except a beat on the revenue front. Revenue increased 12.5% YoY to Rs 27.8bn, EBITDA rose 1.7% YoY to 11.5bn while EBITDA margin contracted by 471bps YoY to 41.6% led by higher fuel (28.2% YoY increase), as well as employee costs (13.4% YoY rise). PAT witnessed 14.4% YoY growth mainly buoyed by higher other income (137% YoY increase), despite increased tax expenses (16.5% YoY rise) as well as higher interest costs (14.1% YoY increase). Q3FY17 saw 137% YoY rise in other income to Rs 2.1bn, as the company monetized (Rs 750mn) some of its hydro project investments which they had put in the development stage of these projects.

* Tata Power’s Q3FY17 consolidated numbers were a tad below our estimates, except a huge beat on the PAT front, mainly due to one‐time gain of Rs 2.5bn on account of proceeds (share of Tata Power) from sale of date centre business of Tata Communications to SingTel. Consolidated revenue declined 9.1% YoY to Rs 66.8bn against our estimate of Rs 71.8bn. Reported EBITDA was 27.1% lower YoY at Rs 14bn against our estimate of Rs 14.7bn. However, consolidated EBITDA margin at 21% was 49bps higher than our estimate of 20.5%. PAT stood at Rs 5.99bn (up 38.3% YoY) against our estimate of Rs 3.6bn due to significant reduction in tax expenses (down 52% YoY) and higher share of profits (32% YoY rise) from its associates and JVs.


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