Saturday, October 17, 2009



Owing to implementation of Central Electricity Regulatory Commission (CERC)
norms, low base due to one-time items and higher YoY generation, we estimate the I-Sec Power universe to post 23.7% YoY PAT growth. NTPC is expected post 32% YoY profit growth owing to: i) new CERC policy, ii) low base with one-time cost & high tax cost and iii) higher power generation with 84% plant load factor (PLF) versus ~82% in Q2FY09 owing to gas availability. During Q2FY10, CESC announced the acquisition of 600MW Dhariwal power project, thereby improving growth visibility for the company. The quarter witnessed insignificant capacity addition and we expect ~870MW addition in Q3FY10. We believe Tata Power (TPL) is the only company that may post YoY profit decline owing to one-time forex gain of Rs767mn in the base year. We maintain CESC as our top pick in the sector; we prefer NTPC over Power Grid Corporation of India (PGCIL) and NHPC among pure regulated companies

Robust YoY PAT growth owing to new CERC norms, higher generation – overall generation grew to ~57bn kwHr from ~52bn kwHr – low base effect for NTPC and PGCIL, with one-off items, and merchant foray by TPL. Within the I-Sec Power universe, we expect only TPL to post YoY decline in reported PAT owing to onetime forex gain in the base quarter.

Strong topline growth with higher generation, usage of expensive fuel, implementation of new CERC policy and increase in YoY capacity, which would lead to 12.7% growth in topline. QoQ, sales are expected to be down 3% owing to planned maintenance activity carried out in Q2 generally.

Muted capacity addition. In Q2FY10, capacity addition was insignificant, with TPL adding 30MW at Haldia and effective operationalisation of 120MW at Jamshedpur. In Q3FY09, we expect CESC to commission 250MW at Budge Budge, while NTPC may commission 500MW at Karanpura; also, TPL may commission ~120MW at Jojobera.

CESC – Outperformer of the quarter. CESC has outperformed the Sensex 23% in Q2FY10 owing to higher growth visibility with the acquisition of 600MW Dhariwal power project in Maharashtra and 18% underperformance versus the Sensex in Q1FY10. We maintain CESC as our top pick in the sector given cheaper valuations of FY11E P/B of 1.1x, improving growth visibility and reducing retail losses.

To see the full report: UTILITIES SECTOR