Table of contents
Regulations – a challenge for the government 8
Regulations now encourage diverse business models 8
Companies with ‘plants’ versus those with ‘plans’ 12
Merchant power – progressive intent 12
Regulations relating to merchant power are evolving 18
Not all signed state MOUs are feasible 23
Execution – a challenge for the companies 25
Acquiring land for power projects is an arduous task 25
Environmental clearance – another key milestone 27
Securing fuel supplies – another key challenge 28
Securing BoP bigger issue now compared with BTG 32
Pre-construction – the most critical phase in India 32
Valuation – a challenge for the investors 38
Not much left for value investing in growth utilities 38
Conventional methodologies inappropriate for valuing growth utilities 39
DCF a relevant methodology; but has its own pitfalls 41
Introducing our five-step CARV tool – an attempt at relative valuation 42
Stock recommendations snapshot 47
Key investment risks 48
Strong execution but fair valuations 50
Expect 6.6 GW of capacity by FY13 51
Concerns on imported coal cost unjustified 52
Fuel security not completely established 54
One of the few growth utilities fully funded for plans 55
Strong growth story but fair valuations 56
Company background 58
Financial summary 59
Fund raising to drive growth 61
Merger with JPVL to create a scalable power entity 62
Financing a key concern 63
Merchant capacities to ensure higher returns 67
Initiate with an OUTPERFORM 68
Background 69
Fully funded for growth 72
Plans to ramp up capacity over 10x to 8.4 GW 73
We factor in capacities with high visibility – expect 4.4 GW by FY14 73
Kondapalli-II project to earn supernormal returns 75
Amarkantak-I project could provide potential upside 75
EPC business aided by in-house orders 76
Assume coverage with an OUTPERFORM rating 77
Financial summary 80
Back-ended growth 82
New CERC norms positive for NHPC 83
Expect increase in ROE 83
Expect capacity additions to be back-ended 84
No plans for merchant projects even over long term 86
Extremely well placed to finance growth plans 86
Estimated 9.5% earnings growth over FY09-12 87
Valuations are steep 87
Financial summary 91
Medium-term prospects priced in 93
Capacity addition plans are aggressive; to face delays 94
Well placed to finance growth plans 95
Limited room to outperform current expectations 96
Financial summary 100
Steep valuations 102
Plans to implement an ambitious 33.8GW capacity 103
Expect low proportion of merchant capacities initially 105
Valuations expensive; initiate with UNDERPERFORM 106
Financial summary 109
Coal price a key variable 111
Plans to increase capacity to 14.5 GW 112
We factor in capacities with high visibility 112
Mumbai operations, IPP offer high cash flow visibility 113
Merchant capacities offer upside potential 113
Stake in coal blocks secures fuel supplies/ price risk 114
Fully funded to reach 8.1 GW in total capacity 115
Concerns on coal mines’ debt repayment not valid 116
Coal prices continue to be the key variable 117
New mining law in Indonesia could cause concerns 118
Mumbai distribution capex – earnings accretive 118
SOTP valuation suggests 17% potential downside 119
Financial summary 121