“Power Grid Corp is likely to be the sole bright spot, delivering another par performance”
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.