Reported net profit of private IPPs (excluding Reliance Power) would be dented by the significant rupee depreciation against the dollar during the current quarter, says Nomura Equity Research
Nomura Equity Research expects IPPs (including NTPC) and Coal India (CIL) to post a sub-par show in 1QFY14; reported PAT of private independent power producers (IPPs, excluding Reliance Power) would be dented by the significant rupee depreciation against the dollar during the quarter (8.6% on period-end basis, 3.2% on period average basis). Power Grid Corporation is likely to be the sole bright spot, delivering another par performance, believes Nomura.
In terms of normalized PAT (i.e. excluding the likely MTM exchange fluctuation losses), Nomura is cautious for all private IPPs in its coverage universe. Amongst private IPPs, its normalized loss forecasts are significantly above consensus for Adani and Lanco Infratech; normalized PAT forecasts for JSW Energy and Reliance Power are around 15% below and in line with consensus, respectively.
Nomura believes NTPC would have done well if it sustains normalized PAT at around Rs25 billion (in-line with consensus, up 3% q-o-q, 4% y-o-y), given the likelihood of a 300bps dip in coal-fired plant availability and lower generation. As regards Power Grid, the kicker from Rs40 billion effective incremental capitalization would help post a 22% y-o-y rise in EBITDA and 17% y-o-y rise in normalized PAT. Nomura’s earnings forecast for Power Grid is broadly in line with consensus.
Nomura expects Coal India’s earnings to disappoint on the back of a flat topline (higher FSA realization offset by lower e-auction revenues) and higher opex (employee & diesel expenses). At Rs37.6 billion, the brokerage’s normalized net profit forecast is 10% below consensus.
Nomura pegs Adani Power’s revenue at Rs23.7 billion (around 8.5 billion kWh sales, Rs2.7/kWh blended realization, Rs4/kWh merchant realization) and normalized EBITDA
(EBITDA excluding fuel creditors-linked MTM exchange fluctuation loss) at Rs5.5 billion (up 50% q-o-q). Including fuel creditors-linked MTM exchange fluctuation loss and assuming 15% effective tax provision, Nomura pegs normalized net loss at Rs7.9 billion (against a consensus net loss forecast of Rs4.4 billion). Together with potential MTM exchange fluctuation loss on derivative instruments, the brokerage expects reported net loss at Rs10.6 billion. Fuel mix at Mundra remains the key swing factor for profitability.
Nomura pegs JSW Energy’s 4QFY13 revenue at around Rss23.2 billion assuming blended realization at around Rs4.1/kWh and sales volume of around 5.0bn kWh. It expects a 5%
q-o-q rise in the coal cost (per kWh) resulting in EBITDA at Rs7.9 billion (34.1% margin) and normalized net profit at rs3.3 billion. Including potential MTM exchange fluctuation loss, we expect reported PAT at Rs2.53 billion (down around 20% q-o-q). Nomura’s forecast EBITDA for JSW Energy is marginally below consensus; normalized net profit is 17% below the street’s forecast.
Nomura expects Lanco Infratech’s consolidated revenues/EBITDA to drop 13%/14% q-o-q as contribution from the EPC business (solar and non-solar) tumbles due to slowdown in execution on the back of cash constraints. Together with a marginal uptick in interest outgo and assuming an effective 15% tax outgo, the brokerage forecasts normalized net loss at Rs5.3 billion (up 66% q-o-q); including potential MTM forex losses, it pegs reported net loss at Rs9.6 billion. Nomura’s 4QFY13 EBITDA forecast is 17% below consensus while its normalized net loss forecast is 56% above consensus.
Nomura believes NTPC’s key operating metrics for the quarter were weak—it estimates Plant Availability (PAF) for coal fired plants at around 85% (compared to 88% in 1QFY13) and coal-fired generation at around 57bn kWh (against 58.9 billion kWh in 1QFY13). Accordingly, the brokerage expects only a marginal uptick in normalized net profit to Rs24.9 billion (up 4% y-o-y, 3% q-o-q); its net profit forecast is in line with consensus.
Factoring in 40% RoE and higher proportion of linkage coal consumption at Rosa (1200MW), together with marginal operating loss at Butibori (300MW), Nomura expects Reliance Power’s consolidated EBITDA at around Rs4.1 billion (up 15.4% y-o-y, down 9.6% q-o-q). It expects non-operating income to spike to Rs1.2 billion on account of potential gains on translation of f/x treasury income (given the sharp rupee depreciation during the quarter). Assuming a 15% potential tax incidence, the brokerage expects normalized net profit at Rs2.2 billion (down 2% y-o-y, up 30% q-o-q) and reported PAT at Rs2.2 billion. Nomura’s 1QFY14F normalized earnings forecast is in-line with consensus.
Nomura expects a 5.2%/5.9% q-o-q growth in Power Grid’s revenues and EBITDA, driven by around Rs40 billion effective incremental capitalization of transmission assets on a sequential basis. Building in a 10% drop in non-operating income (on the back of a lower cash chest), it expects normalized net profit to be up around 3% q-o-q (up 17% y-o-y) at Rs10.6 billion. Nomura’s 4QFY13F earnings forecast is in-line with consensus.
On the back of Coal India’s 115million tonne (mt) offtake, Nomura expects  10% sales via e-auction, and  blended realization at Rs1437 per tonne (in-line with ex-incentives realization in 4QFY13). Despite an effective hike in FSA coal prices effective 29th May, lower contribution from e-auction sales is expected to keep revenues flat y-o-y, said the Nomura report. As higher diesel cost and employee expenses take a toll, Nomura pegs EBITDA at Rs36.4 billion (post OB removal adjustment of Rs8.8 billion), implying a 640bps y-o-y drop in margins. This translates to a 16% y-o-y drop in normalized PAT to Rs37.6 billion. Its net profit forecast is 10% below consensus.
The Janata Party president also urged the PM to impress upon his ministers to desist from becoming “advocates for the deal” that has no substantial or long-term economic benefit for India
Janata Party president Dr Subramanian Swamy has asked prime minister Manmohan Singh to suspend the bilateral agreement signed between India and Abu Dhabi.
“From the timing of it (bilateral agreement) and from a close reading of the minute note of P Chidambaram (finance minister) after the meeting convened by him as directed by you appears prima facie to be linked to the Jet-Etihad deal,” Dr Swamy said in a letter sent to the PM.
Urging Dr Singh to impress upon union ministers to desist from becoming advocates (for Jet-Etihad deal), the Janata Party president said, this deal has no substantial or long-term economic benefit for India.
According to Dr Swamy, there are two reasons to suspend the bilateral agreement...
1. The Constitutional Bench judgment of the Supreme Court constituted on a reference made by the UPA government regarding the mode of allocation of natural resources such as spectrum, held that if it is for commercial exploitation, then auction is a preferred mode of allocation unless compelling reasons are adduced for the contrary view. In this case, India allocated without any substantive reason to prefer a bilateral agreement allotment of air space. But this is untenable since the opinion tendered by the Constitutional Bench to the union government earlier this year, the government is bound to allocate airspace to civil aviation on the basis of auction or to the highest bidder and not otherwise.
2. Second, the Standing Committee of Parliament's recommendation and the Inter-Ministerial Group (IMG) views cannot be disregard in a cavalier manner which is what the group of four ministers did in their meeting of 22 April 2013 convened on the directions from the PM. Hence their decision is arbitrary, unreasonable, illegal and malafide in over-ruling these powerful recommendations without adequate consultation. It will not stand in a challenge in the court.
The deal between Naresh Goyal-led Jet Airways and Etihad Airways, the national airline of the United Arab Emirates (UAE), and the signing of the bilateral between India and Abu Dhabi comprises chain of events taking place one after another. The “smooth and automatic” flow of events makes one wonder whether these incidents were mere coincidence or part of collusion.
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The world faced an oil price bubble in July 2008 when crude price hit an all-time high of $147 or Rs6,333. While the dollar price of oil is about 33% lower than that now, the Indian price has breached the all-time high. This is because of the massive devaluation of the India rupee, which reflects, among things, the massive loot and inefficiency by a regime led by a trained economist, Dr Manmohan Singh
A few days ago, crude oil price quoted on the MCX surpassed the all-time high price of Rs6,333, made in July 2008. How? The culprit is a weak rupee which has made oil as expensive as it was when international oil price was about 50% higher. At that time in 2008 the world was in the grip of the fear of a runaway rise in the price of oil. Global oil prices went parabolic as speculators and large institutions pushed up the price backed by the idea that the world was running out of oil. “Peak oil” theory was a rage. Oil hit an all-time high of $147 in July. Goldman Sachs had announced that the $200 barrier could be hit any time and even the president of the OPEC (Organization of Petroleum Exporting Countries) had warned of oil reaching $200 a barrel.
Well, we are not hearing much of the peak oil theory any more. That is because crude oil is just around $103 now, rising recently after trading around $95 for a long time. But if you look at the Indian imported oil price, you would wonder whether we are re-living the worry of peak oil.
The rupee has been weak for a long time but has cascaded down in the last two months, pushing up oil prices in rupee terms to all-time highs. While the rupee has depreciated against the US dollar by over 12% since the beginning of May to an all-time low of Rs61.21, over the same period price of crude oil has moved up 29% from Rs4,936 per barrel (bbl) to Rs6,389/Bbl as on 8 July 2013. In dollar terms the price of crude oil is up by just 8% from $95.61 in May 2013 to $103.
Crude oil in dollar and rupee terms moved almost in sync from the beginning of 2007 up to September 2011. Then, the decline of the rupee started and there was the expanding gap between the price of crude oil in dollars and in rupees. From around Rs45/$ in September 2011 the rupee declined by 15% to Rs53/$. While the crude oil price in dollar terms moved up by 17%, its price in rupee jumped by 29%. After a slight strengthening of the rupee, over the next couple of months, the rupee continued its downward trend. Since the beginning of this year, the price of crude oil has climbed up by 24% in rupee terms and a much lower 11% in dollar terms. The rupee has depreciated by almost 10% over this period.
So, India is again paying the same price of oil when there was an oil bubble. The hope for a stronger rupee seems bleak given the weak economic fundamentals, costlier imports, high inflation and record high current account deficit (CAD).
The rupee has been weak because the Indian economy has become weak and uncompetitive under the Congress-led UPA government and too dependent on foreign portfolio inflows into stock and bond markets to fund the current account deficit. And now, the foreigners are exiting the bond market, putting pressure on the rupee. In June 2013 foreign institutional investors (FII) pulled out Rs22,000 crore from the debt market. This is a staggering amount, because as much as 12% of total FII investment in the Indian debt market flew out in a span of 21 days.
The government has been trying to gain the confidence of investors saying that the drop in the currency is a temporary phenomenon and most emerging countries are affected. Finance minister P Chidambaram is in the US to drive foreign direct investment especially in the infrastructure sector. We have seen this happen in the past, would foreign investor bite again? Please read Deformed Reforms of the UPA government.
The better than expected US economic data and the view that the Federal Reserve would be winding down its monetary stimulus has sparked a dollar rally. The dollar also rose amid new signs the US housing recovery is improving. This has also led to a huge sell-off in emerging markets including India.
The falling rupee and the rising price of crude oil in dollar terms have acted like a double whammy for the Indian economy. US crude oil futures hit a 14-month high, jumping by more than $1.98/BBL to close at $103.22 on a better-than-expected US jobs report and concern about escalating unrest in Syria will spread to other parts of the Middle East and disrupt supplies.