Power Generation Set for Electrifying Growth | CORPORATE ETHOS

Power Generation Set for Electrifying Growth

By: | October 12, 2017
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Continued economic growth is driving electricity demand in India and the Government has prioritised increased capacity addition maintaining the diversity in the power portfolio. India has one of the most diversified power generation from hydro, thermal and various types of renewable energy.

sreekumar-photoIndia’s total installed capacity is 330.260.53 MW and the target for generation is 1,229.4 bn units in 2017-18.

Additional investment of about US $310-350 bn is expected from domestic and overseas companies in next five years. In the last 17 years, Foreign Direct Investment to the tune of US $11.59 bn was made in the power sector.

Amidst the high growth expectations, here is a look at select players in the power sector:

Tata Power Company Ltd (BSE: 500400 NSE: TATAPOWER) Category: Large Cap

Tata Power Company Ltd is the oldest power generation company in India, having started operations in 1919. For over a century, the power generated by Tata Power has lit up the homes and supplied energy to industrial establishments in Mumbai. It continually upgrades technology, has a unique mix of hydel and thermal energy. Hence its tariffs are very competitive. Coastal Gujarat Power Ltd (CGPL), a wholly owned subsidiary has implemented 4000 MW (800 x 5 units) UMPPP near the port city of Mundra using supercritical technology. It is based on imported coal and most energy-efficient.

Tata Power has a consumer base of 2 mn and generation crossed 52.000 MU for the first time in 2017. It has also become a major renewable energy player with a clean energy portfolio of 3141 MW.

The company witnessed a sharp fall in net profit in FY 2017 at Rs 283 cr compared to Rs 1355 cr in FY 2016. The lower profits were attributed to contractual obligation for purchase of shares in TTSL from DoCoMo and increase in finance cost.

The company has reported over 204% growth in net profit in June quarter at Rs 220.87 cr while sales rose 2.38% to Rs 6968.62 cr.

On a returns perspective, Tata Power has been providing negative returns on monthly, quarterly and half yearly basis while on financial parameters it scores well on return on equity at 6.32%, but fares poorly compared to peers in net profit margin at 2.67%. Comparatively, the cash flow and liquidity ratios are also not commendable.

It is trading at a Price Earnings Multiple (PE) of 67.5 indicating higher valuation by market. On technical charts, Relative Strength Index (RSI) of 52.53 is neutral for the stock while Average Directional Index (ADX) of 21.40 indicates range bound trading. MACD has witnessed a bearish crossover while stochastic indicator is bullish. It is trading close to 50 DMA of 81.

Target: 95   Duration: 3 weeks   Strategy: Hold/Buy

Adani Power Ltd (BSE:533096  NSE: ADANIPOWER)  Category: Mid Cap

Adani Power Ltd, belonging to Adani Group, was set up in 1996 and is a leading player in thermal power generation. It is poised to generate 20, 000 MW power by 2020. In March, it reported a national record for its Mundra Power plant -330 MW by running continuously for 600 days and generating 4142.56 million units (MU) of electricity.

It reported a net loss of Rs 453.85 cr in June quarter, while sales rose 0.23% to Rs 5,590.19 cr . On a quarterly basis it provided a return of 2.73% while financial parameters are all quite negative. Liquidity ratios are also not favourable while cash flows to long term debt are quite positive.

On technical charts RSI of 47.17 is neutral to bearish, MACD is indicating a bearish signal while ADX of 23.63 indicates range bound trading.

Target: 45     Duration: 6 weeks      Strategy: Hold/Buy

JSW Energy Ltd (BSE: 533148, NSE: JSWENERGY) Category: Large Cap

JSW Energy was set up under the JSW Group in 1994 and it now operates 4,531 MW (thermal -3140 MW, Hydel 1,391 MW) of power generation capacity and has set a target of 10,000 MW capacity by 2020. It also has stakes in coal mining in South Africa. In the last six years, it has enhanced power generation capacity from 260 MW to 4,531 MW. It conducts power trading through JSW Power Trading Ltd. It has won several international awards for their work and execution.

In June quarter, net profit fell 40.75% to Rs 217.18 cr while sales fell 7.45% to Rs 2231.64 cr. On a returns perspective, 7.97% monthly, 24.35% quarterly and 22.45% half yearly is commendable. It scores well on financial parameters- Return on equity of 6.06%, assets 2,32%, net profit margin of 7.61% is on par with peers. Liquidity and cash flow ratios aren’t encouraging. Promoters hold 74.99% shares.

It is trading at a high PE of 614 indicating higher valuation by market. On technical charts, RSI of 64.25 is bullish while MACD line has witnessed a crossover and likely to move up while stochastic indicator of 72.71 indicates bullish trend. ADX of 22.32 is indicative of range bound trading. It is trading above 50 DMA of 70.73.

Target: 100   Duration: 6 weeks    Strategy: Sell/Hold

Torrent Power Ltd (BSE: 532779  NSE:TORNTPOWER)   Category: Mid Cap

Torrent Power Ltd was established in 2004 and is a leading player in power sector in Gujarat. It is into generation, transmission and distribution. It has installed capacity of 3334 MW, transmission and distribution loss of 6.3%, and operates in 6 cities.

In June quarter, net profit rose 345.51% to Rs 203.24 cr while sales rose 20.71% to Rs 3058.98 cr. On a quarterly basis, it provides 14.29% returns, it scores well on return on equity at 6.22%, on assets 2.13% but doesn’t fare well on profit margins, liquidity and cash flow.

power2On technical charts, RSI of 48.39 is neutral while MACD is below signal line denoting weakness, while stochastic indicator of 33 indicates bearishness.

Target: Nil

Summary

India’s power generation sector is set to witness higher growth due to expansion of the economy and government measures to boost power output as it is a vital infrastructure for nation building. The sector is very competitive and changes in imported fuel prices can have a negative impact on performance.

Recently, Tata Power and Adani Power were restrained from raising energy prices due to rise in prices of imported Indonesian coal. The Supreme Court observed that it was unnecessary in view of the revised power guidelines and domestic coal allocation policy. It over-ruled Central Electricity Regulatory Commission directive to charge higher prices in view of increase in coal prices.

Fuel pricing, expensive imports, transportation issues with respect to rail and ports, delay in clearances, lack of water all add up to the constraints faced by the industry to report better financials.