After August 2011, themarket is back to 18k level with strong upswing
movement. Factoring the firm global cues with high inflowof investors
in market, Sensex is expected to continue this upward rally. Asper
research, power sector is a lucrative stream to invest with a long
termview.
With Government ofIndia working to boost power sector, Coal Indiawill
sign by March end agreements for supply of fuel to power
projectscommissioned up to December 2011.
TheGovernment has declared about increase in power tariff by 25-30%.
This step ofGovernment has provided huge relief to companies in power
generation companies.According to sources, the price may again see a
hike of 20-25% in long run.
For the 12th plan,Power companies capital expenditure is expected to
by around Rs.100,000-120,000 crore in which about 52,000 km of
transmission lines, 70sub-stations and transmission capacity of
1,36,000 MVA.
The Government of Indiabeing keen on infrastructural development for
economic development, power isthe leading sector to be further
developed.
Going by the recentdevelopment, we expect Powergrid, NHPC, REC,
Neyveli Lignite to report healthyset of results on the back of higher
capitalization and higher capacityaddition. We expect an average post
of 15% increase in revenue.
BUY POWER GRID CORPORATION OF INDIA (532898)
CMP: 111
Target: 150 in 6 months
Power GridCorporation of India, the Central Transmission Utility (CTU)
of the countryunder the Ministry of Power.
CentralTransmission Utility - Navaratna PSU - Asset of Rs. 50352 Cr
ason March 31, 2011.World's Leading Power Transmission Utility -
82,354 Ckt.Kmline-135 Substations Technology Leader in EHVAC & HVDC
Transmission.
Carries 51% ofGenerated Power Across Country.
93,050 MVA Transformation Capacity
22400 MW (Approx) Interregional Capacity
In December 2011 quarter, reported 37% rise net profit atRs 809 crore.
It is likely to get an Rs 5,000-crore line of credit (Loc) fromthe
State Bank of India (SBI). This is part of the Navratna Company's
target ofinvesting Rs 1 lakh crore during the 12th Plan period
(2012-17) to increasetransmission network by over 60,000 circuit km to
around 1.5 trillion circuitkm.
Thecompany had reported a net profit of Rs 591 crore in the year-ago
period.
Itreported Q3 turnover of Rs 2,576 crore, up 20% from Rs 2,145 crore
year ago.
ThePSU declared interim dividend of 8% for the fiscal against 5% last
financialyear.
Company hasmore than 50% of the market share of the transmission
sector and this isexpected to increase.
With Government increasing their spending towards power sector, Power
Grid's robustlong-term business outlook and valuations on a strong
fundamental basis, wehave a 'BUY' rating on the stock at CMP of Rs 111
with target price ofRs.150 in 6 months.
BUY NATIONAL HYDRO POWER CORPORATION
Current: 22
Target: 36 in 6 months
National Hydro Power Corporation, an entity ofGovernment of India, is
country's largest hydro power producer.NHPC iscurrently having an
installed capacity of more than 5,300 MW with 14operational power
stations and has a cash surplus of over Rs.4,000 crore. Thestate-run
major is engaged in the construction of 11 projects at
variouslocations in the country, going to have an additional capacity
of 4,502 MW. Itis planning to develop two hydro projects in Myanmar,
and Bhutan. NHPC had plans to raise Rs 2000-3000 crore byend FY12.It
plans to increase the capacity to over 10,000 MW by end of2012.
The company's total income in December11 quarter jumped 17.4% to Rs
882 crore from Rs 751 crore during the sameperiod.
Mr. ABL Srivastav, Chairman, NHPCcleared the rumors regarding Jammu
Kashmir's plant assuring that the two plantsare in control of NHPC.
The coal price has risen, which will force theincrease in power price
by around 25%. This will further boost the profitmargin of NHPC to a
large extent.
Spanning on Government's increasing emphasis on hydro power and
NHPC'sstrong hold, we recommend a BUY on NHPC at CMP of Rs 22, with
atarget of Rs.36 in 6 months
BUY RURAL ELECTRIFICATION CORPORATION LIMITED (REC) (532955)
CMP: 230
Target: 300 in 3 months
REC, under Ministry ofPower, was incorporated on July 25, 1969 under
the Companies Act 1956. REC alisted Public Sector Enterprise
Government of India with a net worth of Rs.12,784 Crore as on
31.03.11.
REC provides loanassistance to SEBs/State Power Utilities for
investments in ruralelectrification schemes through its Corporate
Office located at New Delhi and17 field units (Project Offices), which
are located in most of the States.
Power sector-specificfinancial institutions such as Rural
Electrification Corporation Limited willmeet greater part of the
sector's debt requirements. Near 100% historicalrecovery rates lend
stability to credit profiles of REC despite their highsector
concentration risk.
Rural ElectrificationCorporation (REC) has reported a net profit of Rs
770 crore in the quarterended December FY12, a growth of 16% as
compared to Rs 664 crore in thecorresponding quarter of last fiscal.
Net sales jumped 27% toRs 2,650 crore versus Rs 2,086 crore year-on-
year.
REC's board membersapproved interim dividend of Rs 5/share.
With a strong sanctionspipeline (INR 1, 60,000 Crore), loan growth is
likely to be healthy at 22% CAGRover FY11-13. Loan book grew 24% Y-o-Y
and 5% Q-o-Q to INR 85800 Crore.
We have a 'BUY' ratingon the stock at CMP of Rs.230 due to REC's
robust long-term business outlookand valuations considering compounded
earnings growth of 25% and average returnon equity (RoE) of 22% over
2011-12.
BUY NEYVELI LIGNITECORPORATION LIMITED (513683)
CMP: 96
Target: 150 in 6 months
NLC is a government-ownedlignite mining Indian company, which is
wholly owned by theUnion Government (49%) and administered via coal
ministry. It isrecently announced as "Navratna" by Government of India
in April 2011. NLCNeyveli spreads over an area of around 54 square km,
comprisingNeyveli Township and temporary colonies around 32 blocks.
The companyruns the biggest open-pit lignite mines in India and mines
around 2.4 Crore tonnesof lignite annually for fuel, with an installed
capacity of 2490 MW ofelectricity per annum.
NLC now elaborated its projectto Rajasthan also in mining as well as
thermal stations, 3 big mines alsosupplies a huge amount of sweet
water to Chennai. The Tamil Nadu electricityboard has a JV with the
Neyveli Lignite Corporation Ltd (NLC) for two projects– A 1000-MW coal-
based project at Tuticorin in south Tamil Nadu at the cost ofRs.4000
crore and the Jayamkondam lignite power project at a cost of Rs.
5000crore for 1000 – MW power plant. The company announced its plans
to investabout Rs.36,900 crore on power generation and mining capacity
augmentation by2017. The company has also planned to develop clean
coal technologies likeextraction of coal bed methane (CBM) and
Underground coal gasification forwhich several steps have been taken.
It is developing power projects usingother fuel feed. The company is
also planning to invest Rs.40,200 crore tobuild power plants in Tamil
Nadu, Rajasthan and Uttar Pradesh.
The coal priced has raised, due to which Central Govt. has forced SEB
toincrease Electricity Power tariff by 20%, which will directly
benefit NLC forownership of their mines.
Neyveli's strength is its ownershipof lignite mines. With increase in
coal price, Neyveli is bound to be benefitedwith emphasis on lignite.
We recommend 'BUY' onthe stock at CMP Rs. 96 with a target price of
Rs. 150 in 6 months.
DISCLAIMER: - Smart Profit has taken due care and caution in
compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
from the use of such information.
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Email: sumanjain@smartprofit.in
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Email: dipak.mangela@smartprofit.in
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