POWER FIRMS NEXT LEVEL OF VALUE CREATION...
After August 2010, the market is back to 18k level with strong upswing
movement. Factoring the firm global cues with high inflow of
investors in market, Sensex is expected to continue this upward rally.
As per research, power sector is a lucrative stream to invest with a
long term view.
With Government of India working to boost power sector, Coal India
will sign by March end agreements for supply of fuel to power projects
commissioned up to December 2011.
The Government has declared about increase in power tariff by 25-30%.
This step of Government 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, 70 sub-stations and transmission capacity of
1,36,000 MVA.
The Government of India being keen on infrastructural development for
economic development, power is the leading sector to be further
developed.
Going by the recent development, we expect Powergrid, NHPC, REC,
Neyveli Lignite to report healthy set of results on the back of higher
capitalization and higher capacity addition. 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 Grid Corporation of India, the Central Transmission Utility
(CTU) of the country under the Ministry of Power.
Central Transmission Utility - Navaratna PSU - Asset of Rs. 50352 Cr
as on March 31, 2011.World's Leading Power Transmission Utility -
82,354 Ckt.Km line-135 Substations Technology Leader in EHVAC & HVDC
Transmission.
Carries 51% of Generated Power Across Country.
• 93,050 MVA Transformation Capacity
• 22400 MW (Approx) Interregional Capacity
In December 2011 quarter, reported 37% rise net profit at Rs 809
crore. It is likely to get an Rs 5,000-crore line of credit (Loc) from
the State Bank of India (SBI). This is part of the Navratna Company's
target of investing Rs 1 lakh crore during the 12th Plan period
(2012-17) to increase transmission network by over 60,000 circuit km
to around 1.5 trillion circuit km.
The company had reported a net profit of Rs 591 crore in the year-ago
period.
It reported Q3 turnover of Rs 2,576 crore, up 20% from Rs 2,145 crore
year ago.
The PSU declared interim dividend of 8% for the fiscal against 5% last
financial year.
Company has more than 50% of the market share of the transmission
sector and this is expected to increase.
With Government increasing their spending towards power sector, Power
Grid's robust long-term business outlook and valuations on a strong
fundamental basis, we have a 'BUY' rating on the stock at CMP of Rs
111 with target price of Rs.150 in 6 months.
BUY NATIONAL HYDRO POWER CORPORATION
Current: 22
Target: 36 in 6 months
National Hydro Power Corporation, an entity of Government of India, is
country's largest hydro power producer.NHPC is currently having an
installed capacity of more than 5,300 MW with 14 operational power
stations and has a cash surplus of over Rs.4,000 crore. The state-run
major is engaged in the construction of 11 projects at various
locations in the country, going to have an additional capacity of
4,502 MW. It is planning to develop two hydro projects in Myanmar, and
Bhutan. NHPC had plans to raise Rs 2000-3000 crore by end FY12.It
plans to increase the capacity to over 10,000 MW by end of 2012.
The company's total income in December 11 quarter jumped 17.4% to Rs
882 crore from Rs 751 crore during the same period.
Mr. ABL Srivastav, Chairman, NHPC cleared the rumors regarding Jammu
Kashmir's plant assuring that the two plants are in control of NHPC.
The coal price has risen, which will force the increase in power price
by around 25%. This will further boost the profit margin of NHPC to a
large extent.
Spanning on Government's increasing emphasis on hydro power and NHPC's
strong hold, we recommend a BUY on NHPC at CMP of Rs 22, with a target
of Rs.36 in 6 months
BUY RURAL ELECTRIFICATION CORPORATION LIMITED (REC) (532955)
CMP: 242
Target: 300 in 3 months
REC, under Ministry of Power, was incorporated on July 25, 1969 under
the Companies Act 1956. REC a listed Public Sector Enterprise
Government of India with a net worth of Rs. 12,784 Crore as on
31.03.11.
REC provides loan assistance to SEBs/State Power Utilities for
investments in rural electrification schemes through its Corporate
Office located at New Delhi and 17 field units (Project Offices),
which are located in most of the States.
Power sector-specific financial institutions such as Rural
Electrification Corporation Limited will meet greater part of the
sector's debt requirements. Near 100% historical recovery rates lend
stability to credit profiles of REC despite their high sector
concentration risk.
Rural Electrification Corporation (REC) has reported a net profit of
Rs 770 crore in the quarter ended December FY12, a growth of 16% as
compared to Rs 664 crore in the corresponding quarter of last fiscal.
Net sales jumped 27% to Rs 2,650 crore versus Rs 2,086 crore year-on-
year.
REC's board members approved interim dividend of Rs 5/share.
With a strong sanctions pipeline (INR 1, 60,000 Crore), loan growth is
likely to be healthy at 22% CAGR over FY11-13. Loan book grew 24% Y-o-
Y and 5% Q-o-Q to INR 85800 Crore.
We have a 'BUY' rating on the stock at CMP of Rs.242 due to REC's
robust long-term business outlook and valuations considering
compounded earnings growth of 25% and average return on equity (RoE)
of 22% over 2011-12.
BUY NEYVELI LIGNITE CORPORATION LIMITED (513683)
CMP: 103
Target: 150 in 6 months
NLC is a government-owned lignite mining Indian company, which is
wholly owned by the Union Government (49%) and administered via coal
ministry. It is recently announced as "Navratna" by Government of
India in April 2011. NLC Neyveli spreads over an area of around 54
square km, comprising Neyveli Township and temporary colonies around
32 blocks. The company runs the biggest open-pit lignite mines in
India and mines around 2.4 Crore tonnes of lignite annually for fuel,
with an installed capacity of 2490 MW of electricity per annum.
NLC now elaborated its project to Rajasthan also in mining as well as
thermal stations, 3 big mines also supplies a huge amount of sweet
water to Chennai. The Tamil Nadu electricity board 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 of Rs.
4000 crore and the Jayamkondam lignite power project at a cost of Rs.
5000 crore for 1000 – MW power plant. The company announced its plans
to invest about Rs.36,900 crore on power generation and mining
capacity augmentation by 2017. The company has also planned to develop
clean coal technologies like extraction of coal bed methane (CBM) and
Underground coal gasification for which several steps have been taken.
It is developing power projects using other fuel feed. The company is
also planning to invest Rs.40,200 crore to build power plants in Tamil
Nadu, Rajasthan and Uttar Pradesh.
The coal priced has raised, due to which Central Govt. has forced SEB
to increase Electricity Power tariff by 20%, which will directly
benefit NLC for ownership of their mines.
Neyveli's strength is its ownership of lignite mines. With increase in
coal price, Neyveli is bound to be benefited with emphasis on lignite.
We recommend 'BUY' on the stock at CMP Rs. 103 with a target price of
Rs. 150 in 6 months.
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