Table of Contents
Stock recommendations & material changes................................. 3
Variance in spot rates – First signs of long-term problems........... 4
Spot bulk prices on days far lower than contract prices ...........................................................4
High peak deficit could fuel spot rates again ............................................................................5
Our demand-supply model assumes that supply shock continues...........................................5
The question is whether discoms can absorb high spot rates..................................................6
Price discovery mechanisms suggest tariffs could taper off ......... 7
An uncanny tussle between discoms and gencos? ..................................................................7
Numerous problems in Case 1 route of competitive bidding ...................................................7
We also see problems in Case 2 route of competitive bidding ................................................8
Regulators forcing discoms to avoid costly power...................................................................9
Business models evolving in Indian power sector ....................... 10
A greater focus is now towards getting long-term PPAs........................................................10
Risk is ~8000MW of capacities planned for short-term PPA..................................................11
Problems for high-cost players as well ...................................................................................12
Business model comparison........................................................... 13
NTPC, Torrent Power and KSK Energy stand out as better business models.........................13
Upgrade TPs but retain Underweight on sector........................... 16
Power utilities now underperforming cap goods....................................................................16
Valuation ................................................................................................................................16
Target prices imply reasonable price-to-book .........................................................................20
TPs imply residual value of assets is below replacement value..............................................21
Valuations imply that returns from sector have to be quite high.............................................22
Global comparative valuation ..................................................................................................23
Appendix A: NTPC........................................................................... 24
Appendix B: Reliance Power .......................................................... 26
Appendix C: Tata Power ................................................................. 28
Appendix D: Lanco Infratech .......................................................... 30
Appendix E: Key assumptions and forecasts ................................ 32
Lanco .....................................................................................................................................32
NTPC......................................................................................................................................32
Reliance Power .......................................................................................................................33
Tata Power.............................................................................................................................34