>Power Sector Q2FY12 Preview: Operational weakness; sector reforms

Adani Power

We expect sales of 3494 MU at an overall average PLF of 74% .EBIDTA margins are expected to improve by 300bps sequentially on account of better operational efficiency. However, the next and the following quarter is expected to be tough as the rupee has depreciated over 8% We expect APL to clock a PATJSW Energy

PLFs and short-term realizations could drive Q2 FY12 results, as global spot coal prices (RB Index) are sequentially flat. Operational softness is expected to continue – SBU I-II (76% PLF), Raj West I (shutdown), Ratnagiri I (70% PLF). We forecast a 153bp Q-o-Q margin contraction as declining merchant realizations outweigh nonrecurrence of one-time expenses from Q1 FY12.

KSK Energy

We expect (1) Wardha Warora offtake and fuel dynamics and (2) taxes to be the key earnings drivers. Following the recent WCL linkage activation, we factor in lower Wardha Warora fuel costs at ` 2.75/unit but also model low project PLFs (60%) and high auxiliary consumption (12%). Q1 FY12 had benefited from a negative tax rate that we do not expect to recur.

Orient Green Power

Q2 is expected to be the best quarter seasonally for OGPL, and thus expect average Wind PLFs of 21%. We expect OGPL to sell 168MU (vs 127MU in Q1FY12) at an average realization of ` 4.6/unit. EBIDTA margins are expected to remain flat yoy and improve by 795 bps sequentially to 51%.We expect Q2FY12 PAT to come in at ` 79mln which translates to an EPS of ` 0.17

PTC India

Q2 is the best quarter for PTC in terms of volumes as cross border volumes peaks during this period. We forecast PTC to trade 9.9 BU inclusive of 3 BU of Cross border Trades at average margins of 4.5bps. We expect overall EBIDTA to come in at ` 589mln implying EBIDTA margins of 1.6% and overall PAT and EPS to come in at 552mln and ` 1.87.

Outlook

PLFs have continued to decline this quarter: -842 bp among private players, -777 bp all-India. Key drivers, in our view, include SEB backing down, ongoing capacity addition, seasonally-weak demand (monsoons), and preferential use of hydropower in the merit order dispatch. This quarter also saw plenty of action in coal regulatory developments and distribution sector reforms: (1) no-go/CEPI, (2) draft MMDR Cabinet approval, (3) MRRT/Australian carbon tax, (4) proposed distribution reforms and discom tariff increases, and (5) progress toward revised Case 1/2 standard bidding documents with increased fuel passthrough.

To read the full report: POWER SECTOR