Utilities: Religare says PLFs up; Macquarie finds fuel concerns rule investor mindset
Munira Dongre 15 November 2010

 In two separate reports, broking firms Religare and Macquarie talk about rising PLFs in October and concerns of global investors about fuel supply risk and the increasing losses by state electricity boards. Both agree that merchant power prices will be under pressure

In a recent report to its institutional clients, Religare Research has said that the PLFs (plant load factor) of private power plants has shown strong improvement, but that in absolute terms, public sector power plant PLFs continue to be higher. "Average thermal PLF of power companies under our coverage increased to 84.6% in October versus 75.3% in September. Private power plants showed the strongest improvement at 76.3% against 64.8% in September, while the PLF of central power plants increased from 77.5% to 86.5%," Religare said in a report dated 10th November.

Adani's Mundra plant PLF improved to 91% in October versus 81% YTD. Jindal Steel & Power's Tamnar plant's PLF improved to 103% versus just 75% YTD. Lanco's Kondapalli and Amarkantak plant showed a 5% and 16% improvement in PLF, respectively, while its smaller Aban plant showed a 24% improvement. NTPC's Korba, Rihand, Faridabad, and Kawas plants showed improvement too.
However, in NTPC's case there was also a drop in PLF at quite a few of its plants. "NTPC's coal-based plants (~25.3GW) averaged 88.6% and gas-based units (~4GW) remained at 73.1%," Religare said. Reliance's Rosa plant improved only slightly. Tata Power's plants showed virtually no improvement.

Religare said OTC prices for Oct/Nov/Dec are expected at ~Rs 4.62/4.65/4.75 per kWh-virtually unchanged from September. While merchant power volumes continued to rise, the trend in tariffs continued to be downward. Prices of coking coal (Newcastle, South Africa) have been rising, while freight rates have picked up sharply since June.

Macquarie has said that most investors it met with recently in Asia, Europe and the US to talk about Indian utilities, were underweight the sector on concerns around fuel supply risk and increasing losses by state electricity boards.

In its report dated 10th November, Macquarie said that after the Coal India initial public offer investors have become very aware that there is a widening demand-supply gap for coal in India and that coal linkages are clearly not enough-a case in point being Lanco's 600MW Amarkantak project which has had to resort to e-auctions despite having linkages with Coal India. The brokerage perceives sole reliance on coal linkages as a big risk and as such finds NTPC in a precarious position.

Among the power companies positively placed in terms of fuel supply security it has called attention to Adani Power (since its parent is the country's largest coal trader, is a coal producer, and a greenfield asset owner and contract miner), and Tata Power since it is "the only utility with a net-long thermal coal position (17-19mtpa to FY17)."

On the losses by state electricity boards (SEBs), Macquarie said that the 13th Finance Commission Report projected state transmission and distribution power losses at $26 billion by FY15. "This weighs heavily on the SEB's appetite to acquire more expensive power as more merchant volume is fed into the power market. Macquarie Research and power traders we spoke too think this will continue to put pressure on merchant power prices-look for greater volume exposure than purely pricing exposure."

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

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