Professional Documents
Culture Documents
India Power Generation CLSA
India Power Generation CLSA
Sector outlook
Bharat Parekh
bharat.parekh@clsa.com
+91 22 6650 5020
9 January 2019
India
Power
Top picks
CESC CESC IB
Rec BUY
Market cap US$1.23bn
Price Rs653
Target Rs880
Up/downside +35%
NTPC NTPC IS
Rec BUY
Market cap US$17.4bn
Price Rs149
Target Rs180
Up/downside +21%
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 187.
India power generation
We would like to thank Evalueserve for its help in preparing our research reports. Bhavik Mehta (IT); Kamal Verma and Shreya Shivani (BFSI); Kushal Shah
(Midcaps); Jinesh Pagaria (Capital Goods, Utilities, Power); and Suraj Yadav (Cement, Oil & Gas) provide research support services to CLSA.
Contents
Executive summary ........................................................................................................ 3
Company profiles
Adani Power........................................ 73 NTPC ................................................. 125
CESC .................................................... 85 SJVN .................................................. 149
JSW Energy ......................................... 97 Tata Power ........................................ 155
NHPC ................................................. 111 Torrent Power .................................. 169
NLC India ........................................... 119
August 2018’s Throne
games report looked ahead
to this year’s Indian
Appendices
general election, which
1: UDAY - Power reform 3.0 ..................................................................................... 177
will affect power demand
2: Power surrendered by discoms ............................................................................. 180
3: Competitive wind power ........................................................................................ 181
4: UP discoms - Existing structure ............................................................................ 182
5: Stressed and stalled power capacity .................................................................... 184
6: NTPC’s plan to desulphurise ................................................................................. 185
All prices quoted herein are as at close of business on 7 January 2019, unless otherwise stated
Executive summary India power generation
Powering up
We are BUYers of NTPC Prime Minister Narendra Modi’s desire to light up every household has produced
and CESC power reforms that are helping to restore sector viability and lift investor
confidence. Effectively pump-priming the US$135bn ecosystem, regulated
utilities and select power producers should be the first beneficiaries. Higher
utilisation and power-purchase agreements on upcoming projects will provide
scope to improve their ROEs. Our top picks are NTPC and CESC.
Power reforms are Government reforms are already helping fix the debt-ridden distribution
delivering companies (discoms), having lowered their losses by 70% over FY15-18, and we
expect these firms to break even by FY21. In a three-step process, Delhi has
launched a 75% debt-reduction plan to take out legacy costs, cut operating costs
and improved revenue via metering and IT infrastructure. This will help boost
power demand and increase visibility on under-construction projects.
Demand acceleration versus We estimate India’s power requirements will double over the next decade, given
supply slowdown Modi’s 24x7 power-for-all initiative and a pick-up in industrial demand as well as
pre-election needs. At the same time, new guaranteed capacity addition is likely
to decline by 45% over FY20-25CL, compared to FY15-20CL, on an 80% drop in
new-equipment awards over FY10-18. Rising demand should reverse the decade-
long fall (FY07-17) in thermal plant output, and improved utilisation of the same
will be the strongest theme, making IPPs the key plays on the sector turnaround.
Regulation headwind to The IPP sector’s core strength has been its solid regulatory regime. Led by Shiri
tailwind P.K. Pujari, its new and progressive chairman, the Central Electricity Regulatory
Commission’s recent draft regulations for FY19-24 not only promise continuity of
an attractive regulated regime for conventional power (even better than
renewables), but also a host of sector-friendly measures. This should address any
market concerns. Our analysis suggests 6-8% EPS upside for NTPC and Power
Grid on continued 15.5% ROE. Meanwhile, Delhi has proposed sweeping changes
to improve the operations of discoms, which control US$80bn of sector revenue.
Buy growth utilities at value The key beneficiaries will be the incumbents, such as NTPC, and solvent private
multiples IPPs with robust balance sheets, such as CESC. We expect NTPC to grow its
regulated equity by more than 50% over FY18-21, resulting in ROE expansion
of some 240bps, which should be a rerating catalyst. The stock is trading near
its 10-year-low valuation, factoring in the recent risks of a tough regulatory
landscape, a challenging environment and project delays. All are set to change.
We also like CESC, one of the more profitable non-state-owned discoms, whose
IPP business drives EPS growth. Further, we rate Tata Power a BUY but are
SELLers of Adani Power and JSW Energy. We also provide insights into high-
yield (low-growth) regulated utilities - such as SJVN, NHPC and NLC - and
vendors CIL, PTC and IEX.
Section 1: Power sector turning around India power generation
Source: CLSA
Subsidies across states of India power: Relative positioning of subsidies across states
UP, Madhya Pradesh and Rank FY13 FY14 FY15 FY16
Tamil Nadu have gone up 1 AP + Telangana AP + Telangana Uttar Pradesh Uttar Pradesh
2 Punjab Uttar Pradesh Tamil Nadu Tamil Nadu
UP now (FY16) accounts for 3 Haryana Haryana AP + Telangana AP + Telangana
c.15.5% of all-India subsidy 4 Uttar Pradesh Tamil Nadu Haryana Haryana
vs c.12.7% in FY13 5 Tamil Nadu Punjab Punjab Madhya Pradesh
6 Bihar Bihar Madhya Pradesh Karnataka
7 Rajasthan Madhya Pradesh Bihar Punjab
Source: CLSA, PFC
Section 1: Power sector turning around India power generation
Figure 3
Based on losses before India power: Losses across state discoms (FY16)
subsidies were received . . .
0
(60)
(80)
(100)
(120)
(140)
Losses after subsidy Subsidy received
(160) (Rsbn)
Uttar Tamil Nadu Rajasthan Madhya Telangana Punjab Haryana Andhra
Pradesh Pradesh Pradesh
Source: CLSA, PFC
A key feature of UDAY is that it puts a hard stop to discoms’ loss absorption;
after that, losses will have to be transferred to individual states’ budgets. This
singular move under UDAY has made a material difference in states’ support for
discom reforms and their sustainable operations, as now it is difficult to hide
losses off budget (partially from FY18, but increasingly from FY21).
Figure 4
Figure 5
Section 1: Power sector turning around India power generation
Figure 6
UDAY aims for sustainable We expect UDAY to improve power generation (Figure 7) driven by increased
improvement in discom demand, which hitherto was suppressed by discoms’ weak financials. We are
operations, vs past blips seeing the first signs of a pickup in the power sector, with the first high single-
digit growth since 2HFY16 (Figure 7). We observe that large power consuming
states, such as Maharashtra, UP and Rajasthan, which were growing slowly (by 0-
5% - accelerated their power-demand growth post-UDAY to 5-12%. We expect
the trend to continue, contrary to previous reforms that caused temporary blips.
This is as because the new reform is a time-bound programme with constant
monitoring and a hard-stop for linking discom losses to state budgets in a gradual
manner. Hence, we believe that sustainable demand recovery would improve
utilisation and eventually drive capex recovery.
Figure 7
12
10
0
Apr 08
Apr 09
Apr 10
Apr 11
Apr 12
Apr 13
Apr 14
Apr 15
Apr 16
Apr 17
Apr 18
Oct 08
Oct 09
Oct 10
Oct 11
Oct 12
Oct 13
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
Source: CEA
Section 1: Power sector turning around India power generation
Figure 8
14
12 Telangana
UP
10
8
Chattisgarh Maharashtra
6 Orissa
AP Gujarat
Punjab
Bihar MP
4
Rajasthan
Delhi Haryana
WB
2
TN
0
Karnataka
(2)
25 Bihar
Chattisgarh
20
15
MP
10
Gujarat
5 Maharashtra
Karnataka
UP Punjab
0 Rajasthan TN
Delhi Haryana
Orissa AP
WB
(5) Telangana
Section 1: Power sector turning around India power generation
Figure 10
(400)
(500) 32%
Cagr
(600)
(700)
Figure 11
36
80 39
60
100 100
90
40
64 61
20
0
Feeder Metering Feeder Metering DT Metering DT Metering Feeder
(Urban) (Rural) (Urban) (Rural) segregation
Source: CLSA, UDAY website
Debt swap: 14 states issued UDAY bonds to take over US$32bn of discom
liabilities, as of September 2015. Top-three states, namely Rajasthan, UP and
Haryana, account for 65% of the total bonds issued.
Section 1: Power sector turning around India power generation
Figure 12
Figure 13
UDAY promises to be a UDAY: Trends in power-purchase costs, AT&C Losses, interest costs and ACS-ARR gap
holistic solution to the Parameters (Rs/kWh) FY14 FY15 FY16 FY17 FY18 Jun 18 Sep 18
discom loss problem . . . ARR 4.42 4.60 4.88 5.03 5.23
Power purchase cost 3.77 3.89 4.18 4.16 4.20
. . . hence power-purchase AT&C losses (%) 23.0 25.0 21.0 20.0 18.8 18.7 22.8
costs, AT&C losses and
Interest cost 0.43 0.42 0.46 0.34 0.34
interest cost have started
ACS-ARR Gap 0.76 0.60 0.60 0.46 0.21 0.21 0.27
decreasing
Source: CLSA, Ministry of Power, UDAY website
Figure 14
Government plans to save UDAY: Potential savings from AT&C loss reduction
US$8.6bn in AT&C losses State AT&C losses AT&C % loss Potential saving if AT&C loss
(FY13-14) (%) target by FY18-19 reduces to target (US$m)
Haryana 34 15 804
Uttar Pradesh 25 15 781
Rajasthan 27 15 679
Madhya Pradesh 28 15 670
Tamil Nadu 22 15 596
Odisha 39 15 572
Total 8,582
Source: CLSA, Ministry of Power
Our analysis of a discom loss reduction of US$6.7bn over FY15-18 under UDAY
points to:
Savings in interest costs by US$3.2bn led by debt swapping; US$32bn of
discom liabilities have already been assumed by the state governments.
Increase in revenue by US$1.5bn, led by an improvement in ARR, from
Rs4.6/kWh in FY15 to Rs5.23/kWh in FY18.
Balance amount of US$1.9bn, led by cost savings, such as a reduction in
power-purchase costs.
Section 1: Power sector turning around India power generation
Figure 15
Losses under UDAY down India power: Discom losses under UDAY
by US$6.7bn to US$2.5bn 700 (Rsbn)
600
500
400
300
200
100
0
FY15 losses Savings on interest Cost savings Increase in revenue FY18 losses
Source: CLSA, UDAY portal
Section 1: Power sector turning around India power generation
Working-capital limits
Discom dues outstanding to UDAY requires working capital via banks, to be 25% of aggregate revenue and
IPPs have increased, as of places severe constraints on discoms’ fiscal space. This could create short-term
1HFY19 volatility in terms of discoms’ ability to source power or pay for it.
High debtors
Due to UDAY placing tight control/discipline over banks’ funding of discom
losses, compared to previous reform phases, we find that discom fees outstanding
to IPPs have increased, as of 1HFY19 (Figure 16). While part of this is seasonal
and led by volume growth, it is also due to a delay in state subsidy payments to
discoms, which typically were paid in 4QFY18. However, under UDAY, as bank
finance beyond approved loss-funding is discouraged, there may be mid-year
spikes, which will eventually put pressure on states and discoms to improve cash
flow discipline.
Figure 16
250
200
150
100
Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18
¹ Praapti portal - data only for 19 major IPPs and not all-India. Source: CLSA
Elections
Key risk to UDAY is gov’t The government tends to give up on discipline ahead of elections. This is a key
easing up on financial risk to UDAY as it is based on financial control. Any announcement of “free-
discipline power”, releasing more power to low-Arpu customers, subsidies and a lack of law-
and-order enforcement are key risks ahead of elections.
Section 1: Power sector turning around India power generation
(20)
(40)
(60)
(80)
(100)
36% Cagr
(120)
(140)
(160) (Rsbn)
FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Rajasthan discom
Our visit to Rajasthan discoms revealed the following . . . politicians will remain politicians
strategies to cut down losses and improve power supply in Ahead of Rajasthan state elections in December 2018, the
the state. incumbent BJP government announced free power for 1.2m
farmers from November, worth Rs12bn/US$170m. Would
1) State assumed US$10.2bn of discom debt, which cut this signal the end of reforms and a return to the old ways of
interest burden by 40% to Rs46.1bn by FY18, working? We don’t think so, if we dig deeper and see the
design of free power.
2) Discoms cut/controlled its costs (avg cost of supply fell to
Rs6.36/kWh by FY18, down by 6% vs FY14) Our analysis of Rajasthan’s free-power scheme points to
three mitigation factors, which are different compared to the
3) Cut its Transmission & Distribution losses by 260bps to past:
24.86% by FY18, vs 27.45% in FY14
1) Payment of free power only via a direct benefit transfer
4) Improved bill-collection efficiency to 101% in FY18, vs (DBT) into the account of the farmer, reducing the risk of
96.9% in FY14 debt at discoms awaiting the state to disburse subsidies,
5) Improved avg revenue realised 51% to Rs5.99/kWh in 2) Cap of Rs10k/HH for subsidy, instilling usage discipline
FY18, vs Rs3.97/kWh. and cap to hit the state exchequer,
Section 2: Demand-supply balance favours IPPs India power generation
Power demand drivers are Demand - Multiple drivers falling into place
falling in place . . .
Figure 17
Power for
Make-in-
All -
India
Electrification
Power
demand
drivers
Industrial
recovery 24x7
post-GST power
slowdown
Elections -
4 states &
1 central by
end-2019
Source: CLSA
Reforms have cleaned up the filter (discom) that was stifling India’s power
demand. As a result of UDAY, improving GDP growth and industrial recovery,
(post GST’s low base) has allowed three key catalysts to fall into place: “Power for
All” led electrification, the government’s 24x7 power agenda, and elections.
Section 2: Demand-supply balance favours IPPs India power generation
Figure 18
200
Cagr
1.7%
175
150
125
Census 2011 Electrification Electrificatied Addition under Meters yet Post
in 7 yrs HH as on Saubhagya to be added Saubhagya
Oct 17 (till 5 Dec 18) (Mar 19)
Source: CLSA, Census 2011, Saubhagya website
Figure 19
25
20
15
10
5
UP MH W. Bihar Raj MP Andh. P Guj TN Kar
Bengal
Source: CLSA, Saubhagya website
Figure 20
After the discom debt Power ministers meet: 24x7 power supply for all
problem and instituting
operational excellence, the
government is working on
Reform 3.0
Source: CLSA, Media reports - PTI
Section 2: Demand-supply balance favours IPPs India power generation
Figure 21
Even today, India has Power cuts to the agricultural sector during October 2018
widespread power State/Region Average hours of supply
blackouts October 2018 April 2018 to October 2018
Northern
Discoms claims power cuts Chandigarh Data not received Data not received
of 6-8 hours, especially Delhi Data not received Data not received
Haryana 9:40hrs/day 07:09-09:50hrs/day
during peak hours
Himachal Pradesh No cut imposed on agriculture HPSEBL has only 2% agriculture
consumers and uninterrupted power is consumers and uninterrupted power is
being supplied to agriculture sector being supplied to agriculture sector.
Jammu & Kashmir Data not received Data not received
Punjab 05:07hrs/day 03:49-08:44hrs/day
Rajasthan 06:30hrs/day 06:30hrs/day
Uttar Pradesh 18:25hrs/day 18:14-18:58hrs/day
Uttarakhand 23:50hrs/day 21:28-23:57hrs/day
Western Region
Chhattisgarh 18hours/day 18 hrs/day
Gujarat 8.05 hrs/day 8.05 hrs/day
Madhya Pradesh Three-phase supply (irrigation) Three-phase supply (irrigation)
- 9:47hrs/day, three-phase (mixed) - 09:33-09:47hrs /day, three-phase
supply - 23:11hrs/day (mixed) supply - 23:00-23:20hrs/day
Maharashtra Three-phase supply (irrigation) - Three-phase supply (irrigation) -
9hrs/day, three-phase mixed) supply - 9hrs/day, three-phase (mixed) supply -
24hrs /day 24hrs/day
Goa No restriction No restriction
Southern Region
Andhra Pradesh 7hrs/day 7hrs/day
Telangana 24hours/day 24hours/day
Karnataka 6hrs/day 6hrs/day
Kerala No restrictions No restrictions
Tamil Nadu 9hrs/day 9hrs/day
(6hrs during day time and 3hrs at night) (6hrs during day and 3hrs at night)
Puducherry No restrictions No restrictions
Eastern Region
Bihar About 18hrs/day About 18hrs/day
Jharkhand About 20hrs/day About 20hrs/day
Odisha 24hrs/day 24hrs/day
West Bengal About 23hrs/day About 23hrs/day
Source: CLSA, CEA
Twelve states elections during FY18-20 and a general election in 2019 should
accelerate the adoption of the 24x7 plan.
Delhi estimates suggest a 30% rise in consumer demand by FY19, should its
24x7 Power for All plan get implemented.
Figure 22
States forecast 9-12% 24x7 Power for All: Expected growth in the power demand
growth in demand to 14 (YoY %) At consumer level At state periphery
achieve 24x7 Power For All
12
12 11
11
9 10
10 9
0
FY17E FY18E FY19E
Source: CLSA, 24X7 Power for all report
Section 2: Demand-supply balance favours IPPs India power generation
Execution starts after delays: UP, Gujarat and TN show the way; more to follow
States that have started A few states - UP, Gujarat & TN - that account for a third of India’s demand
implementing 24x7 plan are have started implementing the 24x7 plan; we find them beating the plan’s
beating demand estimate power-demand estimate.
Gujarat beat the demand in FY18, due to the state elections (Figure 24).
UP’s power demand grew by 12% during Apr-Mar 2018, vs the government’s
power stats showing just a 6% deficit, following the new Chief Minister’s (CM)
resolve to provide 24x7 power by December 2018.
Also, UP’s power PPA requirement is understated in the 24x7 docs by 20%.
Figure 23
A detailed state-by-state India 24x7 Power for All: The government’s plan to meet power demand
plan to deliver 24x7 Power Sales volume at state FY16E FY17E FY18E FY19E FY16-19
for All by 2019. . . periphery (BU) Cagr (%)
Maharashtra 145.1 156.9 169.5 183.1 8
. . . which promised a 30%
rise in power demand Uttar Pradesh 106.4 108.9 117.7 122.9 5
Gujarat 93.4 100.0 107.0 114.5 7
Telangana 60.3 74.1 92.5 106.0 21
Like many good plans, even
Tamil Nadu 85.9 91.2 97.5 104.2 7
24x7 was not implemented
by many states Andhra Pradesh 77.9 84.3 91.3 99.1 8
Rajasthan 68.8 75.1 82.2 89.7 9
Karnataka 67.1 73.4 80.3 87.6 9
With many state elections
approaching, power demand Madhya Pradesh 62.3 68.2 74.1 80.8 9
may surprise in 2019 Haryana 51.9 56.4 61.4 66.8 9
Punjab 52.4 56.6 61.2 66.5 8
Bihar 27.4 38.1 49.2 61.8 31
West Bengal 32.1 34.2 34.1 34.9 3
Delhi 29.9 31.2 32.5 34.0 4
Odisha 27.3 29.2 31.4 33.2 7
Chhattisgarh 24.3 26.1 28.2 30.3 8
Kerala 23.8 25.9 27.7 29.6 8
Jharkhand 13.1 16.0 19.0 22.5 20
Uttarakhand 13.8 15.1 16.4 18.1 9
Jammu & Kashmir 13.7 14.1 14.7 15.6 4
Assam 8.8 10.3 12.1 14.0 17
Himachal Pradesh 9.1 9.4 9.7 10.1 4
Goa 3.9 4.5 5.3 5.5 12
Puducherry 3.0 3.2 3.4 3.6 5
Meghalaya 1.6 1.7 1.9 2.0 8
Tripura 1.1 1.2 1.4 1.6 12
Manipur 0.9 0.9 1.1 1.3 14
Arunachal Pradesh 0.8 1.0 1.1 1.3 17
Nagaland 0.7 0.9 1.0 1.2 16
Sikkim 0.5 0.6 0.6 0.7 9
Mizoram 0.5 0.6 0.6 0.7 10
Total 1,108 1,209 1,326 1,443 9
Source: CLSA, 24X7 Power for all reports
Section 2: Demand-supply balance favours IPPs India power generation
Figure 24
Gujarat, Uttar Pradesh, India: Base and peak demand planned in the 24X7 programme
Tamil Nadu, and West State Base load Peak load
Bengal beat the base
FY17E FY18E FY17E FY18E
demand estimates
Andhra Pradesh 84,270 91,298 11,181 12,264
These states form a third of Arunachal Pradesh 952 1,126 227 268
India’s base power demand Assam 10,345 12,085 1,790 2,091
Bihar 38,100 49,215 5,925 7,654
As elections near, more
states will implement the Chattisgarh 26,140 28,163 5,058 5,449
24x7 programme, boosting Delhi 31,203 32,503 6,537 6,807
IPPs’ demand Goa 4,521 5,300 770 903
Gujarat 99,952 106,973 15,419 16,502
Haryana 56,350 61,380 10,214 11,126
Himachal Pradesh 9,384 9,703 1,520 1,566
Jammu & Kashmir 14,131 14,666 2,715 2,808
Jharkhand 16,012 18,988 2,669 3,175
Karnataka 73,423 80,274 12,147 13,476
Kerala 25,889 27,709 4,214 4,510
Madhya Pradesh 68,193 74,098 10,964 11,748
Maharashtra 156,883 169,478 23,079 24,690
Manipur 893 1,050 242 292
Meghalaya 1,725 1,891 379 412
Mizoram 581 641 118 123
Nagaland 891 1,048 198 235
Odisha 29,232 31,354 4,635 4,971
Puducherry 3,203 3,376 580 611
Punjab 56,620 61,215 11,743 12,514
Rajasthan 75,138 82,151 13,402 14,653
Sikkim 585 645 125 137
Tamil Nadu 91,179 97,492 15,439 16,510
Telangana 74,081 92,475 13,645 15,995
Tripura 1,239 1,420 303 347
Uttar Pradesh 108,853 117,722 17,355 17,934
Uttarakhand 15,070 16,438 2,374 2,589
West Bengal 34,217 34,118 10,258 10,687
All India 1,209,256 1,325,995 205,225 223,047
Source: CLSA, CEA, 24x7 Power for All report
Elections
India’s latent demand potential is evident from the sudden rise in power demand
ahead of elections, when discoms deliver more power, under pressure from
politicians. Our analysis of the last two general elections, held in 2009 and 2014,
indicate a 300-500bps rise in power demand in the three to six 3-6 months prior
to the poll.
Section 2: Demand-supply balance favours IPPs India power generation
Figure 25
0
Apr 08
Apr 09
Apr 10
Apr 11
Apr 12
Apr 13
Apr 14
Apr 15
Apr 16
Apr 17
Apr 18
Oct 08
Oct 09
Oct 10
Oct 11
Oct 12
Oct 13
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
Source: CEA
Figure 26
Figure 27 Figure 28
All India CFL and LED quantity sold All India LED street light quantity sold
500 (m) 3.5 (m)
CFL Qty LED Qty
450
3.0
400
350 2.5
300 2.0
250
200 1.5
150 1.0
100
0.5
50
0 0.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: CLSA, ELCOMA Source: CLSA, ELCOMA
Section 2: Demand-supply balance favours IPPs India power generation
Supply is constrained
Figure 29
India’s power sector is India power: Capacity constraints
facing capacity constraints
Capacity
constraints
Lack of
Retire 25
bank
yr+ old
funding for
plants
pvt. IPP
Source: CLSA
15 6
10 4
5 2
0 0
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
FY15
Section 2: Demand-supply balance favours IPPs India power generation
Figure 31
Just as demand is picking India power: New thermal equipment orders (GW)
up, new firm power capacity 25 (GW)
addition is likely to decline
20
-80%
15
10
0
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
YTD
Source: CLSA, Company
Figure 32
There’s a bigger problem India IPPs (private): Total stress across categories (cost) (Mar-18)
brewing in-under
construction capacity. . . Thermal stressed assets
US$44bn
. . . IPPs have sunk US$11bn
but they need another Under Operational Old coal
US$8bn - who will fund Old gas based
construction (FY15-18) based IPPs
this? IPPs
US$11bn US$13bn US$12bn
Emission
Balance capex
capex
US$6bn
US$2bn
Section 2: Demand-supply balance favours IPPs India power generation
Figure 33 Figure 34
RES
9.8% RES
20.8%
Hydro
23.5% Coal Hydro Coal
52.4% 13.1% 56.6%
500
400
FY14A FY15T FY16T FY17T FY18T FY19T FY20T FY21T FY22T FY23T FY24T FY25T FY26T
Source: CLSA, Company
Figure 36
300
FY16 FY17 FY18 FY19CL FY20CL FY21CL
Source: CLSA, Coal India
Section 2: Demand-supply balance favours IPPs India power generation
Figure 37
After calm from Oct-16 to India power: No. of plants with stock of <7 and <4 days
Oct-17, coal shortages have (No. of plants) < 4 days stocks < 7 days stocks
again started to rise 40
35
30
25
20
15
10
0
Apr 08
Dec 08
Apr 09
Dec 09
Apr 10
Dec 10
Apr 11
Dec 11
Apr 12
Dec 12
Apr 13
Dec 13
Apr 14
Dec 14
Apr 15
Dec 15
Apr 16
Dec 16
Apr 17
Dec 17
Apr 18
Dec 18
Aug 08
Aug 09
Aug 10
Aug 11
Aug 12
Aug 13
Aug 14
Aug 15
Aug 16
Aug 17
Aug 18
Source: CLSA, CEA
Figure 38
Section 2: Demand-supply balance favours IPPs India power generation
Figure 39
NTPC has already stated it India power: Notification for implementation of emission control norms
shall replace 11GW of
thermal power capacity
Section 2: Demand-supply balance favours IPPs India power generation
NTPC plans to install FGD- Some thermal power plants operating for over 25 years that do not have space to
for SOx mitigation install emission-control equipment could be forced to close down post FY23. We
equipment at 63GW of its assume the closure rate to rise to 3GW pa from FY23 onwards in our power
current and future
model, further supporting the business case for emission-compliant plants. NTPC
capacities
plans to install flue-gas desulphurisation (FGD) equipment for SOx mitigation at
63GW of its current and future capacities (Appendix 6).
Figure 42
Figure 43
Section 2: Demand-supply balance favours IPPs India power generation
100
80
60
40
20
0
FY16E FY17T FY18T FY19T FY20T FY21T FY22T Total
Source: CLSA, MNRE, CEA
Section 2: Demand-supply balance favours IPPs India power generation
Figure 46
0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
Source: CLSA, CEA, MNRE
Figure 47
0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
Section 2: Demand-supply balance favours IPPs India power generation
Figure 48
We see little choice other than coal-based thermal for peaking-power as:
Indian coal-based pit-head power plants with environmentally friendly super-
critical technology and emission-control equipment (de-Nox & Sox) are the
most cost competitive ‘firm’ source of power (Figure 49). This is after
accounting for green cess of Rs400/t (US$5.7/t - one of the highest globally).
A key reason for Indian coal’s cost-competitiveness is open-cast, low strip
(0.8-1.5x) mines given to CIL on a nomination basis (no bid premiums to be
paid) in India .
Figure 49
1
2.0 2.4 2.8 2.8 3.0 3.8 4.5 4.6 5.6 8.0
0
CIL Linkage
CIL Linkage
spot thermal
Battery storage
Solar
Hydro
/mmbtu
/mmbtu
Wind
US$4.2
coal mine
(with subsidy)
Gas at
Gas at
(Pit-head
US$8
(800kms
Captive
haulage)
Imported
+ MGR)
Solar +
coal
Source: CLSA
Section 2: Demand-supply balance favours IPPs India power generation
Figure 50
Large hydro projects take seven to eight years to build - if they are built at all.
The government, environmentalists and the courts are at loggerheads to build
next large hydro plants, eg, NHPC’s 2GW Lower Subansiri hydro station has
been under construction for over 14 years and stalled for the last eight.
Gas/LNG is too volatile to Gas/LNG prices are too volatile to be considered long-term as firm price
be considered as firm- contracts aren’t available for 15-25 years,
source long term
Nuclear power plants takes eight to 10 years to build, fuel is scarce and faces
resistance from locals, eg, EDF’s Jaitapur nuclear power plant is facing severe
resistance from the locals for its 6x1650 MW EPR.
Storage systems are “too exotic” a choice for India currently, eg, a 20MW,
8000kwh/day power plant in the Andaman and Nicobar Islands costs
Rs8/kWh with a Rs50m/MW government grant, or Rs12/kWh without. The
studies have said that storage systems won’t help curtailment.
India targeted 175GW/ However, we remain concerned about conventional power IPPs on continued
350GW RE capacities by cross-subsidisation of RE by thermal (be it be a zero-cost transmission subsidy or
FY22/FY30 to meet COP21 green cess on coal) power, and cycling risk inflicted on thermal by RE integration
commitments into the grid. We believe India will need base-load thermal power to meet the
aspirations of the masses, who are cost conscious. This is even after factoring in
175GW of RE capacity by FY22 and 350GW by FY30, to meet COP21
commitments.
Hence, we see thermal power not only sustaining but rather growing till FY30,
both in terms of capacity and also energy (Figure 51). We do not see risk to the
existing capacity and even the growth of thermal IPPs, such as NTPC, NLC and
state gencos.
Section 2: Demand-supply balance favours IPPs India power generation
Figure 51
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
FY25CL
FY26CL
FY27CL
FY28CL
FY29CL
FY30CL
Source: CLSA, CEA
Figure 52
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
FY25CL
FY26CL
FY27CL
FY28CL
FY29CL
FY30CL
Section 2: Demand-supply balance favours IPPs India power generation
Figure 53 Figure 54
Gujarat Solar Park: Variability in solar generation due to cloud Gujarat Solar Park: Variability in solar generation on cloud/rain
Figure 55 Figure 56
Section 2: Demand-supply balance favours IPPs India power generation
Figure 57
2,000
1,500
1,000
500
FY08 FY13 FY18 FY23CL FY28CL
Source: CLSA, CEA
Figure 58
200
150
100
FY08 FY13 FY18 FY23CL FY28CL
Source: CLSA, CEA
Figure 59
Power demand grew by 10% India power: Base load demand growth
YoY in October 2018 . . . 15 (%) Base load demand YoY
3m moving average
. . . led by extended summer,
pre-election demand and
10
strong demand from newly
electrified states
5
(5)
Apr 15 Oct 15 Apr 16 Oct 16 Apr 17 Oct 17 Apr 18 Oct 18
Source: CLSA, CEA
Section 2: Demand-supply balance favours IPPs India power generation
Figure 60
Figure 61
Net capacity addition has India: Net capacity additions for conventional sources
fallen significantly in the 25 (GW) 23.3
past two years
20
15
10.4
10
5.4
5
0
FY16 FY17 FY18
Source: CLSA, CEA
Figure 62
FY17 was a perfect India: CEA target versus actual capacity additions
achievement . . . 14 (GW) Target Acheivement
12
. . . however, for FY18, India
missed CEA’s capacity 10
addition target by 25
8
6
India kept a target of
7.3GW for FY19 - actual 4
achievement till Nov-18 is
1.4GW 2
0.1
0
FY17 FY18 FY19¹
¹ FY19 - Achievement till Nov-18. Source: CLSA, CEA
Section 2: Demand-supply balance favours IPPs India power generation
Figure 63
Figure 64
Capacity addition growth India power: Capacity awarded vs base load growth
has come down . . . 7 (%) Capacity awarded (% of Installed capacity) Base load growth
0
FY14 FY15 FY16 FY17 FY18 FY19YTD
Source: CLSA, CEA, Companies
Figure 65
Peak load has grown by India power: Capacity awarded vs peak load growth
9GW in FY19YTD against 14 (GW) Capacity awarded Peak load growth
which no new capacity has
been awarded . . . 12
. . . on a net basis 10
conventional capacity
addition was down 50% for 8
FY18
6
We remain confident of our
theory of improving 4
utilisation
2
0
FY14 FY15 FY16 FY17 FY18 FY19YTD
Source: CLSA, CEA, Companies
Section 2: Demand-supply balance favours IPPs India power generation
Figure 67
60
55
50
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19YTD¹
¹ FY19YTD - Oct-18. Source: CLSA, CEA
Figure 68
. . . hereon in it is expected 65
to rise structurally
60
55
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
FY23CL
FY24CL
Section 2: Demand-supply balance favours IPPs India power generation
India’s power statistics India’s planner claims: India will enjoy a power surplus in FY18 for first-time post-independence
‘under-report’ demand
Figure 70
To plan future capacity India power: Anticipated power supply position for FY19
based on constrained
demand is fraught with the
risk . . .
Deep portal has become an Deep portal: Tariffs for short-term PPAs
effective mechanism for 6 (Rs) DEEP portal IEX tariffs
procurement of short-term
power for discoms 5
2
Sep 16
Dec 16
Apr 17
Sep 17
Dec 17
Apr 18
Sep 18
Dec 18
Aug 16
Aug 17
Aug 18
Jul 16
Oct 16
Jul 17
Nov 16
Oct 17
Jul 18
Nov 17
Oct 18
Nov 18
Feb 17
Mar 17
Feb 18
Mar 18
May 16
Jun 16
Jan 17
May 17
Jun 17
Jan 18
May 18
Jun 18
Section 2: Demand-supply balance favours IPPs India power generation
Installed capacity sector-wise (Jan 2010) Installed capacity sector-wise (Oct 2018)
Total Generation capacity of India was 156 GW Lot of incremental cap. addition has happened from Pvt. sector
Private
18% Central
Central
24%
32%
Private
46%
State State
50% 30%
Section 2: Demand-supply balance favours IPPs India power generation
Figure 75
Figure 76
3,000
2,000
1,000
0
Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16 Oct 17 Oct 18
Source: CLSA, RBI
Figure 77
Transmission
391K ckm
Adani
Power Grid Sterlite Tata Power
Transmission
150K ckm 5,157 ckm 3,516 ckm
8,600 ckm
38% 1% 1%
2%
Figure 78
DISCOMs
1210 BU
Adani
Torrent R - Infra CESC Tata Power
Transmission
17.6 BU 19.9 BU 15.2 BU 14.4 BU
9.0 BU
1.5% 1.6% 1.3% 1.2%
0.7%
Figure 79
38
All India
(340 GW)
Figure 80
Ecosystem
CIL 454 of SCCL 54 of PFC REC PTC NTPC Vidyut Manikaran Power IEX PXIL BHEL, L&T, ABB, GE T&D,
PLNG GAIL
580 mtpa 65mtpa Rs2.8tn Rs2.4tn 37.6% 10.3% 9.6% 97% 3% Doosan, Toshiba, Cummins, KEC,
GE Power, Kalpataru,
Thermax, Siemens,
Triveni Turbine Scheider
Section 2: Demand-supply balance favours IPPs India power generation
UPERC approved 12% of Uttar Pradesh: Approved merchant purchases in the tariff order
requirement to be procured 20 (BU) Approved merchant purchase (%) 14
12
from merchant market . . . 18 Purchase as a % of total consumption (RHS)
12
16
. . . whereas 24x7 plan 14 10
claims to have entered into 12 8
PPAs over and above 10
requirement 8
5 6
6 4
4 1 2
2
0 0
FY18 FY19 FY20
Source: CLSA, UP ERC
Section 2: Demand-supply balance favours IPPs India power generation
UP’s new CM announces Power for All UP and Delhi’s joint statement after signing the 24x7 Power for All programme
Source: CLSA, Ministry of Power Source: CLSA, ‘Power for All’ website
Section 2: Demand-supply balance favours IPPs India power generation
10 20
15
8 15
6
10
4 6
5
2
11.1 12.0 13.9 13.1 15.7 17.0 16.3
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: CLSA, CEA
18,000
17,000
16,000
15,000
14,000
13,000
UP CM UP signs agreement
12,000 announces with centre for 24x7
24x7 power power by 2018
11,000
10,000
1 Apr 8 Apr 15 Apr 22 Apr 29 Apr 6 May 13 May 20 May 27 May
Source: CLSA, CEA
UP’s base power demand (FY18) India’s base load power demand (FY18)
125 (BU) 1,240 (BU)
115
1,180
1,160
110
1,142
107
1,140
105
1,120
100 1,100
FY17 FY18 FY17 FY18
Source: CLSA, NLDC Source: CLSA, NLDC
Section 3: Regulatory - Headwind to tailwind India power generation
But there has been challenging environment under the previous regulator . . .
The regulator at the helm does have an impact on administration and
Regulator at the helm has
an impact on administration implementation, which impacts regulated utilities’ ability to earn the regulated
and implementation return. Coal-handling loss pass-through within IPP plants has been one such
instance. Here the regulatory provisions in FY14-19 and CERC’s subsequent
delays correcting it hurt IPP ROEs, as well as investor confidence in regulators
that were unaware of on-the-ground realities. The situation also exposed lethargy
in the system and select regulatory members’ autocratic behaviour. Despite the
government advising CERC (Figure 82) to allow an 85-120kcal/kWh handling loss
between coal “as received” and coal “as fired” back in February 2018, the issue
remains unresolved. NTPC has already experienced ROE under-recovery to the
tune of 240-280bps, or 2.4-2.8% of its 15.5% regulatory ROE for eight quarters,
and will suffer for another two quarters of 2HFY19 before it gets corrected by
the new regulator in FY19-24.
Figure 81
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 82
Section 3: Regulatory - Headwind to tailwind India power generation
Capacity Energy
Tariff Charges (AFC) Charges (ECR)
AFC - Annual fixed cost for the year Energy charge: Coal and other fuel costs are recovered
on actual basis through the energy charge rate (ECR).
PAF - Actual plant availability factor
Formula:
NAPAF - Normative plant availability factor - 85%, ‘83%’
as per new draft regulations ECR = landed price of primary fuel x (Heat rate - Heat by
secondary fuel) + secondary fuel cost per unit
New draft regulations propose the recovery to be
shifted on quarterly basis vs annual currently Gross calorific value of fuel
Section 3: Regulatory - Headwind to tailwind India power generation
18 (%) (%) 12
10Y bond yield ROE Spread (RHS)
11
16
10
14
9
12 8
10 7
6
8
5
6
4
4 3
Dec 98
Dec 99
Dec 00
Dec 01
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Source: CLSA, CERC Regulations, Bloomberg
Important terminology simplified: Gross calorific value (GCV): Energy produced by any
PLF-based incentive - Payable at flat rate of 50 paise fuel by combustion of its one unit. It is a characteristic
per kWh of energy generated exceeding normative specific to a fuel. Unit of Measurement - kcal/kg.
annual plant load factor (NAPLF). Except for a few
notified plants, thermal station NAPLF is 85%. Draft Gross station heat rate: Heat energy required by a
proposes to consider calculation on qtrly basis vs annual power station to produce one unit (1 kWh) of power. It
currently and a 65-paise-per-kWh incentive during peak. is a characteristic specific to a power generating station.
Unit of measurement - kcal/unit.
Compensation allowance - To meet expenses on new
assets of capital nature that aren’t admissible for Compensation allowance
capitalisation; removed under proposed FY20-24 draft. Years of operation of the asset (Rsm/MW/year)
0-10 Nil
Interest on working capital - As per new draft - at bank
11-15 0.02
rate (SBI’s 1Y MCLR+350bps) on normative level of WC,
eg, primary fuel cost - 30-day inventory, maintenance 16-20 0.05
spares - 20% of O&M expenses, receivables -45 days of 21-25 0.10
capacity charges + energy charges, O&M expenses - 1M.
Source: CLSA
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 83
. . . we see a pick-up in 15
thermal PLFs and improved
pricing for IPPs 10.4
10
5.4
5
0
FY16 FY17 FY18
Source: CLSA, CEA
Figure 84
2
Nov 12
Nov 13
Nov 14
Nov 15
Nov 16
Nov 17
Nov 18
May 12
May 13
May 14
May 15
May 16
May 17
May 18
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 85
CERC surprised the market CERC draft regulations: Proposal for ROE
with its proposal to
maintain ROE
Figure 86
Proposal to cap full CERC draft regulations: Proposal for ROE at end- of useful-life assets
regulated equity only till
useful life should instil long-
term blended ROE risk
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 87
Security costs excluded CERC draft regulations: Security expenses, a new provision
from O&M is the single-
biggest positive for
regulated utilities
Figure 88
CERC recognised need for CERC draft regulations: Proposal for PAF
preventive maintenance and
difficulty meeting PAF
Figure 89
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 90
Figure 91
Section 3: Regulatory - Headwind to tailwind India power generation
Keeping it simple
CERC’s draft aims to keep tariffs simple and, hence, does away with its earlier
paper, which had asked for opinion on adding one more segment to tariffs to
factor in utilisation. For thermal power, it sought opinions on a three-part tariff
(Figure 92, compared to two parts to add a variable charge, which would be
recovered on utilisation versus current availability. Similarly for transmission
assets, it seeks to distinguish tariffs for access & usage (utilisation).
Figure 92
For thermal-power assets, CERC approach paper: New generation tariff regulations
CERC sought opinions on a
three-part tariff New Power Generation Tariff
Depreciation
Fuel cost
Interest on loan
Incremental return > Rf Transport cost
Guaranteed return
Balance O&M Taxes
(ROE = Rf)
Duties on fuel
Part O&M
Note: ROE - return on equity, Rf- Risk free rate, O&M - Operations & Maintenance. Source: CLSA
Figure 93
Current availability-based CERC approach paper: existing generation tariff regulations
tariffs (PAF) earn core ROE
and only incentives are Existing Power Generation Tariff
linked to utilisation (PLF).
Depreciation
Fuel cost
Interest on loan
Transport cost
Guaranteed return
Taxes
(ROE = 15.5%)
Duties on fuel
O&M
Note: ROE - return on equity, O&M - Operations & Maintenance. Source: CLSA
Figure 94
For transmission power CERC approach paper: New transmission tariff regulations
assets, CERC sought
opinion on a two-part tariff New Power Transmission Tariff
Note: ROE - return on equity, CTS - Common Transmission system, AFC - Annual fixed charges,
O&M - Operations & Maintenance, Rf- Risk free rate. Source: CLSA
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 95
We model for a 600bp CERC approach paper: CERC’s view on tightening ROE
spread to accommodate
potential changes in CEA’s
stance
Figure 96
Regulated utilities have India power: Spread of the power ROE over 10-year yield curve and power ROE
enjoyed power ROEs with a (%) ROE Spread Avg spread
18
c.7.2% spread over 10-yr
bonds over past 20 years 16
2
Dec 98
Dec 99
Dec 00
Dec 01
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Source: CLSA, CERC
Figure 97
CEA ignored the recent up- CERC approach paper: Comments on power ROE
move in 10-yr bonds and
used a dated bond yield of
early-2018 to justify point
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 98
Another positive for NTPC CERC approach paper: View on the allocation of coal GCV risk
is the recognition of a
three-way allocation of
grade slippage risk
Figure 99
Figure 100
6
Dec 01
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Section 3: Regulatory - Headwind to tailwind India power generation
This will mean that consumers in the lower brackets will be subsidised by
consumers in the higher bracket. For example, consumers in load bracket 0-2 and
>2-5 KW may be subsidised by consumers having higher load brackets (>5-1 0,
>1 0-25 and >25 KW).
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 101
Sign PPAs of power required to provide power 24x7, which would have
regulatory oversight: Discoms will be required to tie up the necessary capacity
through long/medium-term PPAs, such that it meets the annual average
demand of the area. The proposal also mentions that this arrangement will
undergo a review once in every two years.
Figure 102
Section 3: Regulatory - Headwind to tailwind India power generation
Section 3: Regulatory - Headwind to tailwind India power generation
Figure 103
The objective of Merit Order Operation (MOO) is to minimise the total generation
cost, while honouring the technical constraints of the power plants and the grid.
Figure 104
300
260
220
180
140
100
Talcher
Korba I & II
Ramagundem III
Unchahar II
Rihand I
Vindhyachal III
Sipat I
Talcher Kaniha I
Vindhyachal IV
Simhadri I
Kahalgaon II
Rihand III
Korba III
Vindhyachal II
Unchahar I
Farakka I & II
Kahalgaon I
Vindhyachal V
Ramagundem I & II
Rihand II
Sipat II
Vindhyachal I
Talcher Kaniha II
Singrauli
Section 3: Regulatory - Headwind to tailwind India power generation
One generator-discom pair As per the MOO, one pair of generator/discom will be scheduled at the national
will be scheduled at the level vs the current practice of tied up capacities at the plant level. Plants will be
national level utilised based on their energy charge rate (ECR), ensuring that those with lower
ECRs to be utilised first - reducing the overall cost of power generation.
Net savings shall be to be shared 50:50 between the discom and the generator.
Our basis of estimate (BoE) suggests cost savings from MOO reforms to save
Rs11bn on a net basis to discoms and add Rs6bn to NTPC PAT. Implementation
of MOO could begin from 1QFY20.
Renewable blending with thermal to cut costs & save carbon footprints
Savings from replacing CERC has allowed blending of RE as part of thermal PPA, where cost of
costly thermal power with renewables is lower than the thermal energy charge. This is mainly suitable for
renewables shall be shared high-cost (imported coal-based) thermal plants, who could replace costly power
50:50 between beneficiaries
with cheaper renewables esp. during the sun-hours. Savings derived by replacing
and generator
costly thermal power with renewables shall be shared 50:50 between
beneficiaries and generator. NTPC has contracted 2GW of solar and 1.2GW of
wind power to replace its costly generation, improve availability, cut-down its
carbon foot-print and still earn incentives from cost-savings.
Section 4: Valuations are compelling India power generation
400
300
200
100
0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
Section 4: Valuations are compelling India power generation
80% of the cost in 70% of the projects, improving project-start visibility. NTPC is
getting closer to robust regulated equity growth, which will expand ROE by
240bps over FY18-21CL (a rerating catalyst). The stock is value trading below c.-
2sd on PE (Figure 116) & at a 1.0x FY20CL BV (Figure 115), a near 10-year low,
with a 4.5% dividend yield (FY20CL) at 40% payout.
Post-restructuring, CESC We see CESC offering investors a dual opportunity: a key power-reform play as
has now emerged as a pure- India opens up the distribution sector, and through a turnaround in its IPP
play on India’s power business (12% of FY18 consolidated PAT). While its Kolkata discom keeps
reforms generating cash, CESC saw losses of Rs1.2bn in FY18 at the three newly acquired
Rajasthan discom circles it won as part of the state’s power reforms. It plans to
turn these around, cutting AT&C losses by transposing its best practices from the
Kolkata license area. In IPP, while its Haldia-regulated IPP is cash-generative,
Chandrapur is losing money. However, with rising PLFs, even the losses at
Chandrapur have halved in 1HFY19 to Rs500m, versus a loss of Rs2bn in FY18.
Post restructuring, we highlight CESC has now emerged as a pure-play on India’s
power reforms. We value the generation and discom business of CESC at
US$470m and US$1.1bn.
Figure 106
Section 4: Valuations are compelling India power generation
CGD companies remain Among India’s large companies, NTPC has the best growth profile and it is the
excessively valued to cheapest, trading at 9.6x FY20CL EPS and 1.1x FY20CL BV, vs a 14% EPS Cagr
perceived high growth over FY18-21CL and dividend yield of over 4%. We believe that the NTPC's risk-
reward is favourable, compared to Petronet LNG, as NTPC has the best
combination of high growth and inexpensive valuations among its
regulated/annuity peers. However, Petronet LNG stock is trading at its long-term
average PE, while NTPC is trading below/at -2sd PE. City gas distribution (CGD)
companies remain excessively valued (50-100% PE premium, versus regulated
peers) due to perceived high-growth, but neither IGL (13%) nor MGL (11%) is
demonstrating EPS Cagrs, albeit they do earn excessive ROE (19-24%).
We expect Bharti Infratel’s EPS to report degrowth over FY18-21. The stock is
trading expensively at 26x FY20CL EPS and 3.0x FY20CL BV for 11% ROE/3.5%
dividend yield at 90% payout.
Figure 108
CESC² CESC IB BUY 653 1,233 6.7 6.0 5.5 4.4 3.9 0.6 0.5 40 30 9 11 1.8 2.0
JSW Energy JSW IB SELL 70 1,640 11.2 11.6 10.7 5.0 5.5 1.0 1.0 106 89 9 9 4.3 4.7
NHPC NHPC IB N-R 26 3,824 10.9 9.9 8.8 8.6 7.7 0.9 0.8 50 49 9 10 6.0 6.6
NTPC NTPC IS BUY 149 17,373 13.9 10.6 9.6 6.4 6.0 1.1 1.1 123 117 11 11 3.3 4.2
SJVN SJVN IN N-R 26 1,434 0.9 8.1 8.1 4.7 4.7 0.9 0.8 - - 12 12 8.6 7.5
Tata Power TPWR IB BUY 75 2,875 13.8 12.2 10.7 5.7 5.0 1.3 1.2 232 192 12 12 1.8 1.9
Torrent Power TPW IB N-R 264 1,823 24.3 10.7 9.7 5.5 5.1 1.4 1.2 118 114 14 13 na na
Average 11.7 9.9 9.0 6.5 6.0 1.0 0.9 110.1 95.4 10.8 11.2 4.3 4.5
¹ Adani Power -ratios taken as ‘na’ to account for negative equity in FY19/20CL. ² CESC - adjusted for subsidiary nos. ³ NLC - no analyst coverage as per
Bloomberg. Source: CLSA, Bloomberg
Figure 109
Bharti Infra should have a India utilities: PB vs ROE (%) framework (FY18-21CL)
lower ROE than NTPC in ROE (%) MGL (5, 24)
25
FY21CL . . .
MGL
23 PLNG
. . . despite NTPC trading IGL (6, 21)
21 GGL
below 1.0x FY21CL BV vs PLNG
Bharti’s c.3.0x 19 IGL
17
PWGR BHIN
PWGR
GGL (5, 16)
15
NTPC GAIL GSPL
ATL
13
TPWR TPWR BHIN
11 CESC GSPL GAIL
JSWE NTPC ATL (6, 11)
9
7 JSWE
CESC
PB (x)
5
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Source: CLSA
Section 4: Valuations are compelling India power generation
Figure 110
Among IPPs, NTPC is the India IPPs: PB vs ROE (%) framework (FY18-21CL)
only stock moving in the 15 ROE (%)
top-left quadrant NLC
14 TORRENT
NTPC TORRENT
13
TPWR
12 TPWR
SJVN SJVN
11
CESC
NHPC
10 NTPC
JSWE
9
8 NHPC
JSWE
CESC PB (x)
7
0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7
Source: CLSA
Rs180
TP
Source: CLSA
Section 4: Valuations are compelling India power generation
DCF-based valuation
As the focus of the company shifts from capex to capitalisation, we believe the
FCFF will emerge and remain healthy. Our one-year forward DCF-based valuation
is Rs180, which implies 1.3x FY20CL PB and 11.4x FY20CL PE. We have set the
long-term growth rate at 1.5% (terminal growth rate), which is below the long-
term growth rate for the Indian power sector.
Figure 112
Figure 113
Theoretical PB approach
We arrive at a fair value of NTPC has a stable ROE profile, which makes it ideal to use the theoretical PB
Rs193 at 1.3x PB, via approach (Gordon growth model). Its long-term ROE should be similar to the
Gordon growth model returns allowed by the regulator, which is 15.5% (without incentives). We factor
in the uncertainty around coal availability/plant shutdown and take the long-term
average ROE of 14% for the DCF-based valuation methodology. We use 12.5%
cost of equity (COE) for NTPC, with a beta of 0.83. The 7.8% long-term growth
rate in nominal terms is based on ROE (14%) multiplied by the retention ratio
(56%).
Growth = ROE x (1 - payout ratio)
PB = (ROE - growth)/(COE - growth)
Section 4: Valuations are compelling India power generation
Figure 114
Apr 12
Apr 13
Apr 14
Apr 15
Apr 16
Apr 17
Apr 18
Oct 11
Oct 12
Oct 13
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
Source: CLSA
Figure 116
12.5
+1sd
11.5
Avg
10.5
-1sd
9.5
-2sd
PE
8.5
Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18
Source: CLSA, Bloomberg
Section 4: Valuations are compelling India power generation
We rate CESC a BUY with a target price of Rs880. We value CESC using SOTP-
based methodology. Our post demerger value, considers the discom and
generation businesses at US$1.1bn and US$470m. We assign a PB multiple of
1.7x for the regulated business, due to its superior (18-20% RoE), and PB
multiples of 0.9x and 1.8x for the Chandrapur and Haldia projects. Losses at its
recently acquired franchise and coal linkage for the 600MW Chandrapur plant are
the key risks.
Gail trades well below its average PE and pending tariff hikes for key pipelines,
which may be announced within three months, could be a catalyst for the stock.
Gas being brought under GST and the government’s push for cleaner fuels are
other positives for the stock.
Figure 117
Section 4: Valuations are compelling India power generation
The start of the Mundra and Jaigarh terminals in early 2019 will add over 35% to
India’s regas capacity, when total LNG demand in India may hardly see an
increase as Reliance’s petcoke gasifier starts.
Our 20mtpa FY23 volume for Petronet implies c.10% utilisation for the rest of
the industry and could put pressure on its regas tariffs. Take-or-pay contracts are
c.50% of its regas volumes.
We also see limited chance of any volume-led earnings surprises driving a further
rerating, as we model near full utilisation of the Dahej terminals.
Petronet should see a 13% earnings Cagr over FY18-21CL and is trading above
historical long term average valuations: SELL.
Figure 118
17
15 +1sd 14.73x
13
avg 12.25x
11
-1sd 9.77x
9
5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: CLSA
Section 4: Valuations are compelling India power generation
Figure 119
35
30 +1sd 30.45x
avg 25.67x
25
-1sd 20.88x
20
15
2013 2014 2015 2016 2017 2018
Source: CLSA
20
Coal-fired IPPs need to
think twice before adding
new projects amid sharp
15
decrease in return
10
0
2014 2015 2016 2017 2018CL 2019CL
Source: Companies, CLSA
Section 4: Valuations are compelling India power generation
Figure 121
Section 4: Valuations are compelling India power generation
Figure 122
80
70
60
50
40
30
20
10
0
SJVN NLC NHPC NTPC Guj Gas PWGR GAIL PLNG IGL GSPL Maha
Gas
Source: CLSA, BSE, Company
Figure 123
70
60
50
40
30
20
10
0
SJVN NLC NHPC NTPC Guj Gas PWGR GAIL PLNG IGL GSPL Maha
Gas
Source: CLSA, BSE, Company
Section 4: Valuations are compelling India power generation
Figure 124
50
40
30
Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Dec 18
Source: CLSA, BSE, Company
Figure 125
10
0
SJVN NHPC NLC JSW NTPC PWGR CLSA CESC TPWR TPW Adani
Universe
CLSA Universe - refers to India coverage only. Source: CLSA, BSE, Bloomberg, Company
India power generation
Notes
India power generation
Company profiles
CESC ............................................................................................................................... 85
All prices quoted herein are as at close of business on 7 January 2019, unless otherwise stated
India power generation
Notes
Adani Power
Rs50.35 - SELL
Major shareholders Balance sheet challenging, leverage rises; M&A risk remains
Promoters 75.0% Looking at net debt/equity doesn't help much (at 100x in 2QFY19), as net worth
Opal Investment 5.5%
was wiped out: accumulated losses total 88% of its paid-up share capital and APL
parent Adani Group has stopped injecting equity, choosing instead to lend debt.
APL is still bidding for stressed assets (GMR, KSK), despite its precarious balance
Blended ESG Score (%)* sheet. In our view, the key to sustainability lies in it paring down unsustainable
Overall 42.8 debt, receiving change-in-law compensation, securing SHAKTI coal and ending its
Country average 63.7 M&A strategy. We value Adani Power at an EV of Rs53m/MW and take into
GEM sector average 57.8 account its debt, to arrive at a target price of Rs23.
*Click to visit company page on clsa.com for details
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Adani Power - SELL India power generation
Financials at a glance
Year to 31 March 2017A 2018A 2019CL (% YoY) 2020CL 2021CL
Adani Power - SELL India power generation
Adani Power - SELL India power generation
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
APL generated meaningful Adani Power: Cashflow, not accounting for unpaid compensatory tariffs
positive cashflow in 6,000 (Rsm) 16,440
2QFY19
5,000
4,000
3,000
2,000
1,000
0
(1,000)
(2,000)
(3,000)
(4,000)
(5,000)
(6,000)
(7,000)
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Unsustainably high debt, Adani Power: Gross debt split across plants
due to accumulated losses
on bad bids, loss on fuel and Consol
risky FX debt Rs538bn
Holdco
Rs14bn
Adani Power - SELL India power generation
If resolution is not found for Adani Power: Gross debt split across sources
Mundra asset, haircuts can’t
be ruled out Consol
Rs538bn
Adani Group has already
invested Rs122bn in
keeping entity afloat
NCD ECB Term loan WC ICD
Rs39bn Rs63bn Rs266bn Rs49bn Rs122bn
(50)
1,000
(100)
500
0 (150)
Dec 12
Sep 13
Dec 13
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Source: CLSA, CEA
2,000 100
1,500 50
1,000 0
500 (50)
0 (100)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Adani Power - SELL India power generation
300 (50)
200
(100)
100
0 (150)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Source: CLSA, CEA
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Adani Power - SELL India power generation
Adani Power - SELL India power generation
Valuation details
We value Adani Power at an EV of Rs53m/MW and take into account its debt, to
arrive at a target price of Rs23.
Investment risks
Potential acceptance of compensatory tariffs by state discoms, continued fall in
coal prices, rupee appreciation and a run-up in merchant power prices are key
investment risks to our call. The balance sheet is highly leveraged, which could
worsen, due to additional debt taken for M&A.
60 No coverage N-R
50
40
30
20
Adani Power - SELL India power generation
Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2017A 2018A 2019CL 2020CL 2021CL
Revenue 229,038 192,910 206,286 245,316 266,791
Cogs (ex-D&A) (146,236) (125,484) (134,663) (162,789) (182,336)
Gross Profit (ex-D&A) 82,802 67,427 71,623 82,527 84,455
Research & development costs - - - - -
Selling & marketing expenses - - - - -
Other SG&A - - - - -
Other Op Expenses ex-D&A (21,886) (21,415) (13,662) (15,511) (16,190)
Op Ebitda 60,917 46,012 57,961 67,017 68,265
Depreciation/amortisation (26,724) (26,987) (27,349) (27,349) (27,349)
Op Ebit 34,193 19,025 30,612 39,668 40,915
Interest income 4,190 2,724 719 639 546
Interest expense (59,017) (55,702) (54,837) (54,356) (52,639)
Net interest inc/(exp) (54,828) (52,978) (54,118) (53,717) (52,093)
Associates/investments - - - - -
Forex/other income - - - - -
Asset sales/other cash items - - - - -
Provisions/other non-cash items - - - - -
Asset revaluation/Exceptional items - - - - -
Profit before tax (20,635) (33,953) (23,506) (14,049) (11,177)
Taxation 861 52 (183) - -
Profit after tax (19,774) (33,902) (23,689) (14,049) (11,177)
Preference dividends - - - - -
Profit for period (19,774) (33,902) (23,689) (14,049) (11,177)
Minority interest 0 0 0 0 0
Net profit (19,774) (33,902) (23,689) (14,049) (11,177)
Extraordinaries/others 0 0 0 0 0
Profit avail to ordinary shares (19,774) (33,902) (23,689) (14,049) (11,177)
Dividends 0 0 0 0 0
Retained profit (19,774) (33,902) (23,689) (14,049) (11,177)
Adjusted profit (19,774) (33,902) (23,689) (14,049) (11,177)
EPS (Rs) (5.1) (8.8) (6.1) (3.6) (2.9)
Adj EPS [pre excep] (Rs) (5.1) (8.8) (6.1) (3.6) (2.9)
Core EPS (Rs) (5.1) (8.8) (6.1) (3.6) (2.9)
DPS (Rs) 0.0 0.0 0.0 0.0 0.0
Adani Power - SELL India power generation
Adani Power - SELL India power generation
Cashflow (Rsm)
Year to 31 March 2017A 2018A 2019CL 2020CL 2021CL
Operating profit 34,193 19,025 30,612 39,668 40,915
Operating adjustments - - - - -
Depreciation/amortisation 26,724 26,987 27,349 27,349 27,349
Working capital changes 35,233 (2,331) 9,855 2,124 14,733
Interest paid / other financial expenses 59,017 55,702 54,837 54,356 52,639
Tax paid - - - - -
Other non-cash operating items (106,750) (58,382) (49,520) (54,356) (52,639)
Net operating cashflow 48,416 41,002 73,133 69,140 82,997
Capital expenditure (6,612) 13,722 719 639 546
Free cashflow 41,804 54,724 73,852 69,779 83,544
Acq/inv/disposals - - - - -
Int, invt & associate div - - - - -
Net investing cashflow (6,612) 13,722 719 639 546
Increase in loans (61,467) (52,198) (64,837) (81,705) (74,988)
Dividends 0 0 0 0 0
Net equity raised/(buybacks) 17,018 - - - -
Net financing cashflow (44,449) (52,198) (64,837) (81,705) (74,988)
Incr/(decr) in net cash (2,645) 2,526 9,015 (11,926) 8,555
Exch rate movements - (1) - - -
Opening cash 8,687 6,042 8,566 17,581 5,656
Closing cash 6,042 8,566 17,581 5,656 14,211
OCF PS (Rs) 12.6 10.6 19.0 17.9 21.5
FCF PS (Rs) 10.8 14.2 19.1 18.1 21.7
DuPont analysis
Year to 31 March 2017A 2018A 2019CL 2020CL 2021CL
Ebit margin (%) 14.9 9.9 14.8 16.2 15.3
Asset turnover (x) 0.3 0.3 0.3 0.4 0.4
Interest burden (x) (0.6) (1.8) (0.8) (0.4) (0.3)
Tax burden (x) 1.0 1.0 1.0 1.0 1.0
Return on assets (%) 4.6 2.7 4.5 5.9 6.4
Leverage (x) 24.8 37.5 (2,721.6) (40.8) (22.2)
ROE (%) (68.8) (180.4) 9,438.7 85.8 38.6
EVA® analysis
Year to 31 March 2017A 2018A 2019CL 2020CL 2021CL
Ebit adj for tax 32,767 18,996 30,850 39,668 40,915
Average invested capital 609,545 599,291 571,166 537,828 501,319
ROIC (%) 6.0 3.2 5.4 7.4 8.2
Cost of equity (%) 14.5 14.5 14.5 14.5 14.5
Cost of debt (adj for tax) 10.5 11.0 11.1 11.0 11.0
Weighted average cost of capital (%) 12.1 12.4 12.5 12.4 12.4
EVA/IC (%) (6.2) (9.2) (7.1) (5.0) (4.2)
EVA (Rsm) (33,765) (55,256) (40,268) (27,023) (21,248)
Source: www.clsa.com
Adani Power - SELL India power generation
Notes
CESC
Rs653.20 - BUY
9 January 2019 Integrated play with optionality, T&D losses remain best in business
With 2.5GW of generation capacity and 13BUs of distributed power, India’s No.3
India discom offers investors a play on electricity generation and distribution, boasting
Power the right blend of regulated (Kolkata genco, Haldia IPP, and Kolkata and Noida
discoms) and unregulated (Chandrapur IPP and Rajasthan discoms) units. A key
Reuters CESC.BO driver would be to reinvest cashflow from regulated businesses into unregulated
Bloomberg CESC IB
ones, to improve long-term ROE. Transmission and distribution losses remain
Priced on 7 January 2019 below 10%, making it one of the most profitable regulated discoms.
CNX Nifty @ 10,771.8
12M hi/lo Rs919.89/636.12 IPP subsidiaries add 22% to parent earnings
12M price target Rs880.00 India’s power reforms are helping unclog depressed power demand, which has
±% potential +35% led to more short-term PPAs. On the back of improving agreement utilisation
Shares in issue 132.6m and visibility, we expect losses at CESC’s Chandrapur IPP (9% of our SOTP) to
Free float (est.) 50.1% halve in FY19, from Rs2bn in FY18 - while it operated at a plant load factor
Market cap US$1.23bn (PLF) of 65% in 1H19, compared to 49% in 1H18. Haldia reported a profit of
Rs1.5bn in 1H19, operating at a PLF of 94% in 1H19, versus 87% in 1H18. On a
3M ADV US$8.5m
net basis, subsidiaries’ generation businesses contributed Rs1bn (22% to
Foreign s'holding 11.0%
parent earnings in 1H19).
Major shareholders
Promoters 49.9% Emerging pure-play on power reform after start-up losses; BUY
HDFC Trustee Company 9.0%
We see CESC as a key power-reform play as India opens up its distribution sector.
It had start-up losses of Rs1.2bn in FY18 at three Rajasthan discom circles it won
as part of the state’s power reforms. It plans to turn these around, cutting
Blended ESG Score (%)* aggregate technical and commercial losses by transposing its best practices from
Overall 62.5 the Kolkata license area. Even the losses at Chandrapur have halved YoY in 1H19,
Country average 63.7 to Rs500m. We maintain our BUY recommendation using a SOTP-based valuation
GEM sector average 57.8 to derive our target price of Rs880. We assign a PB multiple of 1.7x for the
*Click to visit company page on clsa.com for details
regulated business, which contributes a value of Rs558/share.
Stock performance (%)
1M 3M 12M
Absolute (6.5) 1.9 (22.5) Financials
Relative (7.2) (2.4) (24.1) Year to 31 March 17A 18A 19CL 20CL 21CL
Abs (US$) (5.5) 7.2 (29.9) Revenue (Rsm) 74,102 79,820 87,682 94,403 101,442
(Rs) (%)
950 150 Net profit (Rsm) 8,629 8,710 8,938 9,757 10,572
900 EPS (Rs) 64.8 65.4 67.1 73.2 79.4
140
850
CL/consensus (10) (EPS%) - - 92 89 72
800 130
EPS growth (% YoY) 2.1 1.0 2.6 9.2 8.4
750
120 PE (x) 10.1 10.0 9.7 8.9 8.2
700
Dividend yield (%) 1.5 1.8 1.8 2.0 2.1
650 110
600
FCF yield (%) 2.1 6.4 6.2 6.3 6.8
CESC (LHS) 100
550 Rel to Nifty
PB (x) 0.8 0.7 1.0 0.9 0.8
500 90 ROE (%) 7.6 7.4 8.7 10.7 10.7
Jan 17 Sep 17 May 18 Jan 19 Net debt/equity (%) 32.7 35.7 40.1 29.8 20.5
Source: Bloomberg Source: www.clsa.com
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
CESC - BUY India power generation
Financials at a glance
Year to 31 March 2017A 2018A 2019CL (% YoY) 2020CL 2021CL
CESC - BUY India power generation
CESC demerger - retail and CESC revised corporate structure (equity capital)
ventures businesses will be
listed separately CESC Power Spencer Retail CESC Ventures
(Rs1,320m) (Rs400m) (Rs260m)
CESC - BUY India power generation
Owing to the higher CESC: Haldia plant monthly generation and PLF
demand from the Kolkata 500 (MU) (%) 120
Haldia generation PLF (RHS)
licence area . . .
450
100
. . . Haldia operated at a PLF 400
of 96% in 2Q19 vs 88% in 350
2Q18 80
300
250 60
200
40
150
100
20
50
0 0
Dec 15
Apr 16
Dec 16
Apr 17
Dec 17
Apr 18
Aug 16
Aug 17
Aug 18
Oct 15
Oct 16
Oct 17
Oct 18
Feb 16
Feb 17
Feb 18
Jun 16
Jun 17
Jun 18
Source: CLSA, CEA
Chandrapur’s losses should CESC: Chandrapur plant monthly generation and PLF
halve in FY19CL with a 400 (MU) (%) 90
Chandrapur generation PLF (RHS)
185MW new STPPA (Case
IV) with Maharashtra state 350 80
70
PLFs improved to 67% in 300
FY19YTD, vs 45% FY18YTD 60
250
50
200
40
150
30
100
20
50 10
0 0
Dec 15
Apr 16
Dec 16
Apr 17
Dec 17
Apr 18
Aug 16
Aug 17
Aug 18
Oct 15
Oct 16
Oct 17
Oct 18
Feb 16
Feb 17
Feb 18
Jun 16
Jun 17
Jun 18
0 45
Dec 15
Apr 16
Dec 16
Apr 17
Dec 17
Apr 18
Aug 16
Aug 17
Aug 18
Oct 15
Oct 16
Oct 17
Oct 18
Feb 16
Feb 17
Feb 18
Jun 16
Jun 17
Jun 18
CESC - BUY India power generation
10
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, CEA
5,600 88
5,500
86
5,400
84
5,300
82
5,200
5,100 80
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, CEA
600 50
40
400
30
20
200
10
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, CEA
CESC - BUY India power generation
CESC - BUY India power generation
13
12
11
+1sd 10.55x
10
9
avg 8.28x
8
6 -1sd 6.01x
4
Apr 13
Apr 14
Apr 15
Apr 16
Apr 17
Apr 18
Jul 13
Oct 13
Jul 14
Oct 14
Jul 15
Oct 15
Jul 16
Oct 16
Jul 17
Oct 17
Jul 18
Oct 18
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
1.2
1.1
1.0
+1sd 0.98x
0.9
0.8
avg 0.74x
0.7
0.6
0.4
0.3
Apr 13
Apr 14
Apr 15
Apr 16
Apr 17
Apr 18
Jul 13
Oct 13
Jul 14
Oct 14
Jul 15
Oct 15
Jul 16
Oct 16
Jul 17
Oct 17
Jul 18
Oct 18
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
CESC - BUY India power generation
Valuation details
We rate the impact of CESC's demerger and carve-out of the discom and
generation businesses separately. We value the company using a SOTP-based
valuation for a target price of Rs880. We assign a PB multiple of 1.7x for the
regulated business, which contributes a value of Rs558/share, and PB multiples of
0.9x and 1.8x for the Chandrapur and Haldia projects, which contribute Rs58/sh
and Rs152/sh.
Investment risks
Risk of losses at its recently acquired coal mine due to aggressive bidding and
potential cancellation of linkage for the 600MW Chandrapur plant (25% of its IPP
capacity) are key risks.
No coverage N-R
800
600
400
CESC - BUY India power generation
Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Revenue 61,888 66,080 74,102 79,820 87,682 94,403 101,442
Cogs (ex-D&A) (46,400) (48,640) (55,994) (61,200) (67,575) (73,375) (79,533)
Gross Profit (ex-D&A) 15,489 17,440 18,109 18,620 20,107 21,029 21,909
Research & development costs - - - - - - -
Selling & marketing expenses - - - - - - -
Other SG&A - - - - - - -
Other Op Expenses ex-D&A - - - - - - -
Op Ebitda 15,489 17,440 18,109 18,620 20,107 21,029 21,909
Depreciation/amortisation (3,431) (3,700) (4,090) (4,330) (5,243) (5,416) (5,589)
Op Ebit 12,058 13,740 14,019 14,290 14,864 15,612 16,320
Interest income 766 1,003 1,083 1,083 777 1,158 1,559
Interest expense (4,079) (4,560) (4,480) (4,840) (5,046) (5,152) (5,242)
Net interest inc/(exp) (3,312) (3,557) (3,398) (3,758) (4,269) (3,994) (3,683)
Associates/investments - - - - - - -
Forex/other income - - - - - - -
Asset sales/other cash items 82 277 388 578 578 577 578
Provisions/other non-cash items - - - - - - -
Asset revaluation/Exceptional items - - - - - - -
Profit before tax 8,827 10,460 11,009 11,110 11,172 12,196 13,214
Taxation (1,850) (2,010) (2,380) (2,400) (2,234) (2,439) (2,643)
Profit after tax 6,977 8,450 8,629 8,710 8,938 9,757 10,572
Preference dividends - - - - - - -
Profit for period 6,977 8,450 8,629 8,710 8,938 9,757 10,572
Minority interest 0 0 0 0 0 0 0
Net profit 6,977 8,450 8,629 8,710 8,938 9,757 10,572
Extraordinaries/others 0 0 0 0 0 0 0
Profit avail to ordinary shares 6,977 8,450 8,629 8,710 8,938 9,757 10,572
Dividends (1,439) (1,598) (1,599) (1,918) (1,918) (2,078) (2,238)
Retained profit 5,539 6,852 7,030 6,792 7,020 7,679 8,334
Adjusted profit 6,977 8,450 8,629 8,710 8,938 9,757 10,572
EPS (Rs) 52.4 63.4 64.8 65.4 67.1 73.2 79.4
Adj EPS [pre excep] (Rs) 52.4 63.4 64.8 65.4 67.1 73.2 79.4
Core EPS (Rs) 52.4 63.4 64.8 65.4 67.1 73.2 79.4
DPS (Rs) 9.0 10.0 10.0 12.0 12.0 13.0 14.0
CESC - BUY India power generation
CESC - BUY India power generation
Cashflow (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Operating profit 12,058 13,740 14,019 14,290 14,864 15,612 16,320
Operating adjustments - - - - - - -
Depreciation/amortisation 3,431 3,700 4,090 4,330 5,243 5,416 5,589
Working capital changes (11,801) 28,200 (957) 1,501 (102) (629) (787)
Interest paid / other financial expenses (4,079) (4,560) (4,480) (4,840) (5,046) (5,152) (5,242)
Tax paid (1,850) (2,010) (2,380) (2,400) (2,234) (2,439) (2,643)
Other non-cash operating items - 242 200 200 200 200 200
Net operating cashflow (2,241) 39,312 10,492 13,081 12,925 13,009 13,437
Capital expenditure (8,100) (7,700) (8,700) (7,516) (7,516) (7,516) (7,516)
Free cashflow (10,341) 31,612 1,792 5,565 5,409 5,493 5,921
Acq/inv/disposals (10,583) (18,657) (40) (40) (40) (40) (40)
Int, invt & associate div 3,200 3,953 3,036 (60) 4,254 3,344 3,489
Net investing cashflow (15,482) (22,404) (5,704) (7,616) (3,302) (4,212) (4,067)
Increase in loans 12,875 (20,548) 6,562 (2,354) 900 900 900
Dividends (1,439) (1,598) (1,599) (1,918) (1,918) (2,078) (2,238)
Net equity raised/(buybacks) 76 - - 0 - - -
Net financing cashflow 15,653 (26,257) 4,679 (7,624) (1,178) (1,178) (1,338)
Incr/(decr) in net cash (2,070) (9,349) 9,467 (2,159) 8,445 7,619 8,032
Exch rate movements 1,634 10,342 (8,587) 0 0 0 0
Opening cash 7,814 7,377 8,370 9,250 7,090 15,535 23,153
Closing cash 7,378 8,370 9,250 7,091 15,535 23,153 31,185
OCF PS (Rs) (16.8) 295.1 78.8 98.2 97.0 97.7 100.9
FCF PS (Rs) (77.6) 237.3 13.5 41.8 40.6 41.2 44.4
DuPont analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit margin (%) 19.5 20.8 18.9 17.9 17.0 16.5 16.1
Asset turnover (x) 0.4 0.3 0.3 0.3 0.3 0.4 0.4
Interest burden (x) 0.7 0.8 0.8 0.8 0.8 0.8 0.8
Tax burden (x) 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Return on assets (%) 5.7 5.3 4.4 4.3 4.7 5.0 5.0
Leverage (x) 2.9 2.4 2.2 2.2 2.5 2.7 2.7
ROE (%) 12.1 9.6 7.6 7.4 8.7 10.7 10.7
EVA® analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit adj for tax 9,531 11,100 10,988 11,203 11,891 12,490 13,056
Average invested capital 107,105 130,427 145,177 144,325 144,452 147,004 149,725
ROIC (%) 8.9 8.5 7.6 7.8 8.2 8.5 8.7
Cost of equity (%) 14.0 14.0 14.0 14.0 14.0 14.0 14.0
Cost of debt (adj for tax) 7.9 8.1 7.8 7.8 8.0 8.0 8.0
Weighted average cost of capital (%) 11.0 11.0 10.9 10.9 11.0 11.0 11.0
EVA/IC (%) (2.1) (2.5) (3.4) (3.2) (2.8) (2.5) (2.3)
EVA (Rsm) (2,200) (3,298) (4,864) (4,557) (3,999) (3,681) (3,414)
Source: www.clsa.com
CESC - BUY India power generation
Notes
JSW Energy
Rs70.00 - SELL
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
JSW Energy - SELL India power generation
Financials at a glance
Year to 31 March 2016A 2017A 2018CL (% YoY) 2019CL 2020CL
JSW Energy - SELL India power generation
JSW Energy - SELL India power generation
2,000
1,000
(1,000)
(2,000)
2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18
Source: CLSA, Company
6
Hydro Ebitda was flat
0
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
4.5
4.0
3.5
3.0
2.5
2.0
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
JSW Energy - SELL India power generation
4.0
3.5
3.0
2.5
2.0
FY15 FY16 FY17 FY18 FY19CL FY20CL
Source: CLSA, Company
4.0
3.8
3.5
3.3
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
JSW Energy - SELL India power generation
40
500
20
400
0
300
(20)
200
(40)
100 (60)
0 (80)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
800 100
80
. . . driven by increase in LT 700
PPA off-take 60
600
40
500
20
400
. 0
300
(20)
200 (40)
100 (60)
0 (80)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
JSW Energy - SELL India power generation
30
600
20
500
10
400
0
300
(10)
200
(20)
100 (30)
0 (40)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Source: CLSA, CEA
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
2,500 60
40
2,000
20
1,500
0
1,000
(20)
500 (40)
0 (60)
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
JSW Energy - SELL India power generation
JSW Energy - SELL India power generation
JSW Energy - SELL India power generation
Valuation details
Our target price is based on SOTP; we value all six projects of JSW Energy using
FCFE methodology with different COEs for different projects (a 7.75% risk-free
rate and 5.5% risk premium) and investments at book value/discount to market
value. For investments in JSW Steel, we value it at a discount to our target price.
Investment risks
Rise in merchant-tariff rates and a fall in coal prices and/or freight rates may
positively impact JSW’s profitability.
No coverage N-R
90
80
70
60
JSW Energy - SELL India power generation
Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2015A 2016A 2017A 2018CL 2019CL 2020CL
Revenue 93,802 98,245 82,634 88,627 90,235 92,992
Cogs (ex-D&A) (46,811) (43,774) (39,072) (40,788) (43,225) (46,442)
Gross Profit (ex-D&A) 46,991 54,471 43,562 47,839 47,010 46,550
Research & development costs - - - - - -
Selling & marketing expenses - - - - - -
Other SG&A - - - - - -
Other Op Expenses ex-D&A (10,756) (14,210) (10,319) (11,843) (12,182) (12,544)
Op Ebitda 36,234 40,261 33,244 35,996 34,828 34,006
Depreciation/amortisation (7,898) (8,543) (9,692) (10,409) (10,409) (10,409)
Op Ebit 28,337 31,719 23,552 25,587 24,419 23,597
Interest income 2,301 2,351 2,170 2,996 3,304 2,749
Interest expense (11,375) (14,981) (16,848) (15,327) (13,555) (11,771)
Net interest inc/(exp) (9,074) (12,630) (14,678) (12,331) (10,252) (9,022)
Associates/investments - - - - - -
Forex/other income - - - - - -
Asset sales/other cash items - - - - - -
Provisions/other non-cash items - - - - - -
Asset revaluation/Exceptional items - - - - - -
Profit before tax 19,263 19,089 8,875 13,256 14,167 14,575
Taxation (5,243) (5,113) (2,690) (4,661) (4,362) (3,955)
Profit after tax 14,020 13,976 6,185 8,595 9,805 10,620
Preference dividends - - - - - -
Profit for period 14,020 13,976 6,185 8,595 9,805 10,620
Minority interest (276) (423) 41 57 65 70
Net profit 13,745 13,553 6,226 8,652 9,870 10,690
Extraordinaries/others 0 0 0 0 0 0
Profit avail to ordinary shares 13,745 13,553 6,226 8,652 9,870 10,690
Dividends (3,811) (3,811) (3,811) (4,326) (4,935) (5,345)
Retained profit 9,933 9,742 2,414 4,326 4,935 5,345
Adjusted profit 13,745 13,553 6,226 8,652 9,870 10,690
EPS (Rs) 8.4 8.3 3.8 5.3 6.0 6.5
Adj EPS [pre excep] (Rs) 8.4 8.3 3.8 5.3 6.0 6.5
Core EPS (Rs) 8.4 8.3 3.8 5.3 6.0 6.5
DPS (Rs) 2.3 2.3 2.3 2.6 3.0 3.3
JSW Energy - SELL India power generation
JSW Energy - SELL India power generation
Cashflow (Rsm)
Year to 31 March 2015A 2016A 2017A 2018CL 2019CL 2020CL
Operating profit 28,337 31,719 23,552 25,587 24,419 23,597
Operating adjustments - - - - - -
Depreciation/amortisation 7,898 8,543 9,692 10,409 10,409 10,409
Working capital changes (9,396) (8,548) 7,669 (121) (32) (56)
Interest paid / other financial expenses (11,375) (14,981) (16,848) (15,327) (13,555) (11,771)
Tax paid (5,243) (5,113) (2,690) (4,661) (4,362) (3,955)
Other non-cash operating items - - - - - -
Net operating cashflow 10,221 11,620 21,375 15,887 16,878 18,225
Capital expenditure (5,614) (56,938) (6,578) (5,140) (8,326) (76,326)
Free cashflow 4,608 (45,318) 14,797 10,747 8,552 (58,102)
Acq/inv/disposals 2,407 (11,842) (4,230) - - -
Int, invt & associate div 2,760 1,483 2,368 2,363 3,304 2,749
Net investing cashflow (446) (67,297) (8,439) (2,777) (5,022) (73,577)
Increase in loans (8,123) 55,681 (5,129) 2,188 3,423 5,303
Dividends (3,811) (3,811) (3,811) (4,326) (4,935) (5,345)
Net equity raised/(buybacks) - - - - - -
Net financing cashflow (11,935) 51,870 (8,941) (2,138) (1,512) (42)
Incr/(decr) in net cash (2,160) (3,808) 3,995 10,972 10,344 (55,395)
Exch rate movements - 3,866 275 633 - -
Opening cash 5,675 3,515 3,574 7,843 19,448 90,041
Closing cash 3,515 3,573 7,843 19,448 29,792 34,646
OCF PS (Rs) 6.2 7.1 13.0 9.7 10.3 11.1
FCF PS (Rs) 2.8 (27.6) 9.0 6.6 5.2 (35.4)
DuPont analysis
Year to 31 March 2015A 2016A 2017A 2018CL 2019CL 2020CL
Ebit margin (%) 30.2 32.3 28.5 28.9 27.1 25.4
Asset turnover (x) 0.5 0.4 0.3 0.3 0.3 0.3
Interest burden (x) 0.7 0.6 0.4 0.5 0.6 0.6
Tax burden (x) 0.7 0.7 0.7 0.6 0.7 0.7
Return on assets (%) 10.6 9.7 5.8 5.8 5.7 5.8
Leverage (x) 2.6 2.8 2.8 2.7 2.7 2.6
ROE (%) 18.6 16.2 6.2 8.1 8.9 9.2
EVA® analysis
Year to 31 March 2015A 2016A 2017A 2018CL 2019CL 2020CL
Ebit adj for tax 20,624 23,223 16,413 16,590 16,900 17,193
Average invested capital 160,646 198,872 234,341 229,039 225,501 220,081
ROIC (%) 13.1 11.7 7.0 7.2 7.5 7.8
Cost of equity (%) 14.5 14.5 14.5 14.5 14.5 14.5
Cost of debt (adj for tax) 7.6 7.7 7.3 6.8 7.3 7.7
Weighted average cost of capital (%) 14.5 14.5 14.5 14.5 14.5 14.5
EVA/IC (%) (1.3) (2.8) (7.5) (7.2) (7.0) (6.7)
EVA (Rsm) (2,111) (5,546) (17,483) (16,533) (15,716) (14,643)
Source: www.clsa.com
JSW Energy - SELL India power generation
Notes
NHPC
Rs25.95 – N-R
Priced on 7 January 2019 Large projects stuck in on ground agitation, project execution lagging
CNX Nifty @ 10,771.8
India hasn’t done a good job at enlightening its masses on the compelling need to
12M hi/lo Rs33.85/22.10 create water storage for agriculture and drinking, and the importance of
dams/hydro power as a flood mitigation/power tool. Hence, even the courts have
supported locals and banned storage hydro projects. NHPC has been a victim of
such misinformed agitation at its largest project - the 2GW Lower Subansiri (44%
Shares in issue 10,259m of its CWIP), under-construction for 14 years and stalled for the last seven. It is
Free float (est.) 22% likely to start construction again from 4QFY19. It also faced project execution
challenges at its second largest project under construction - Parbati 2 (800MW)
Market cap US$3.82bn
and 3 (520MW) - at 32% of CWIP, due to a delayed management decision to
3M ADV US$1.8m cancel a defunct contract, hydrology surprises and poor planning.
Foreign s'holding 4.6% High tariffs deter buyers, voluntary ROE sacrifices?
NHPC’s recent P&L hit on stalled projects, and consideration of hiking
Major shareholders
Government of India 73.6% debt/equity/offering lower ROE to discoms on its ROE to make its power from
LIC of India 7.47% the Parbati project viable has shocked investors. This shall further depress its
Power Finance Corp 2.54% ROE and defeat the purpose of CERC giving a higher ROE for hydro power.
HDFC Trustee 2.00%
Value or value trap?
Some 42% of NHPC’s balance sheet is stuck with CWIP, which doesn’t earn a
Stock performance (%) return for shareholders and depresses its ROE. This is at a decade low of 8.5%,
1M 3M 12M
despite CERC offering it a superior 16.5% ROE, as 53% of its net worth is stuck in
Absolute (1) 12 (19) CWIP - earning no ROE. NHPC stock is trading at 0.9x PB and offers 6% yield.
Financials
(Rs) (%)
35 110 Year to 31 March 17A 18A 19IBES 20IBES 21IBES
105
33 Revenue (Rsm) 84,165 77,512 90,950 104,836 109,784
100
31 95
Net profit (Rsm) 23,106 25,039 28,738 31,221 35,046
90 EPS (Rs) 2.09 2.44 2.85 3.04 3.43
29
85 EPS growth (% YoY) (14.3) (14.4) (6.3) (11.4) (18.7)
27 80 PE (x) 12.4 10.6 9.1 8.5 7.6
25 75
Dividend yield (%) 6.6 5.4 6.0 6.8 7.5
NHPC (LHS) 70
23
Rel to Nifty 65 ROAE (%) 7.6 8.5 9.1 10.3 10.6
21 60 PB (x) 0.9 0.9 0.9 0.8 0.8
Dec 16 Aug 17 Apr 18 Nov 18 Net gearing (%) 36.54 41.54 47.58 50.27 -
Source: Bloomberg Source: IBES
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
NHPC - N-R India power generation
4,500
4,000
3,500
3,000
FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company
NHPC - N-R India power generation
Consensus expects revenue NHPC (consolidated): Revenue and growth - YoY (%)
growth to pick up at 120 (Rsbn) (%) 50
Revenue Growth - YoY (RHS)
NHPC post the decline +40%
over FY14-18 . . . 40
100
. . . revenue is expected to
30
grow at 8% Cagr over 80
FY18-21E vs 1% Cagr
over FY15-18 20
60
10
40
0
20 (10)
0 (20)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Capitaline, Bloomberg
Ebitda margins have fallen NHPC (consolidated): Ebitda and margin (%)
from 67% in FY13 to 58% in 70 (Rsbn) (%) 73
Ebitda Margin (RHS)
FY18 . . .
71
60
. . . increase of CWIP, local
agitation issues have 69
50
marred Ebitda margins 67
40 65
30 63
61
20
59
10
57
0 55
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Capitaline, Bloomberg
Profit is expected to enjoy NHPC (consolidated): PAT and growth - YoY (%)
an 11% Cagr over FY18- 35 (Rsbn) (%) 100
PAT Growth - YoY (RHS)
21CL vs flat growth over +87%
FY15-18
30 80
25 60
20 40
15 20
10 0
5 (20)
0 (40)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Capitaline, Bloomberg
NHPC - N-R India power generation
36% of NHPC’s B/S is stuck NHPC (consolidated): Capital work in progress (as % of total assets)
in CWIP, earning no ROE 750 (Rsbn) Gross block CWIP (%) 36
for the company . . . Other non-current assets WC
700 CWIP (% of total assets) 34
. . . NHPC’s ROE has been 650
depressed . . . 600 32
350 24
300
22
250
200 20
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Capitaline
5 0
0 (2)
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Bloomberg
NHPC - N-R India power generation
NHPC‘s stock has not NHPC (consolidated): Total shareholder yield (%)
delivered any return over
the last 2.5 years . . . 22 (%)
Dividend yield Buyback/capital return yield
. . . however, it offers a high 20
dividend yield
18
16
14
12
10
(2)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
100
90
80
70
60
FY13 FY14 FY15 FY16 FY17 FY18
NHPC - N-R India power generation
NHPC - N-R India power generation
NHPC’s capacity has NHPC (consolidated): Summary profit and loss statement (Rsm)
grown at a Cagr of 6% over Particulars (Rsm) FY14 FY15 FY16 FY17 FY18
FY13-18 . . . Revenue 74,159 82,441 89,050 93,431 84,872
Ebitda 43,833 52,163 53,728 55,643 49,378
. . . reflecting the same, Depreciation (14,994) (17,153) (14,320) (14,618) (14,791)
even revenue has grown at
Ebit 28,839 35,010 39,408 41,026 34,587
3.5% Cagr over FY14-18
Net interest expense 1,419 1,624 (245) 4,321 1,786
Profit before tax 30,258 36,634 39,163 45,347 36,374
Taxes (8,954) (9,203) (10,003) (10,544) (8,629)
Rec PAT 21,304 27,431 29,160 34,802 27,745
Minority and associates (4,144) (3,067) (3,142) (4,509) (2,708)
Rec PAT (after minority and associates) 17,160 24,364 26,018 30,293 25,037
Exceptional (4,972) 550 - - -
Rep PAT (after minority and associates) 12,188 24,914 26,018 30,293 25,037
Source: CLSA, Capitaline
NHPC has invested higher NHPC (consolidated): Summary balance sheet (Rsm)
proportion of equity in its Particulars (Rsm) FY14 FY15 FY16 FY17 FY18
assets; also 42% of its B/s is Shareholder's fund 282,460 307,575 316,427 290,148 300,179
stuck in CWIP . . . Minority interest 30,657 33,257 31,681 33,822 29,349
Long-term borrowings 193,090 187,245 181,811 172,456 167,282
. . . due to both these
Other non-current liabilities 34,877 33,481 47,187 49,747 46,448
reasons, NHPC reported
single digit ROE of 8.5% in Total equity and liabilities 541,084 561,557 577,106 546,174 543,258
FY18 Net block 295,868 279,161 226,095 222,226 211,728
CWIP 149,240 163,775 167,416 175,876 190,871
Other non-current assets 34,828 47,133 107,920 120,383 127,786
Trade receivables 24,224 29,052 19,045 18,540 13,460
Cash and cash equivalent 61,428 69,410 72,835 34,725 33,191
Other current assets 48,423 25,589 34,690 30,022 26,841
Short-term borrowings - - - (3,025) (2,800)
CM of long-term borrowings (15,104) (18,600) (17,571) (16,786) (15,939)
Trade payables (2,234) (1,649) (1,304) (1,576) (1,838)
Other current liabilities (55,589) (32,315) (32,020) (34,211) (40,042)
Net current assets 61,148 71,488 75,675 27,689 12,873
Total assets 541,084 561,557 577,106 546,174 543,258
Source: CLSA, Capitaline
NHPC - N-R India power generation
Notes
NLC India
Rs68.30 – N-R
Financials
(Rs) (%)
125
NLC India (LHS)
140 Year to 31 March FY14 FY15 FY16 FY17 FY18
120
115 Rel to Nifty 130 Revenue (Rsm) 59,672 60,877 56,633 77,790 84,472
110 120 Net profit (Rsm) 15,479 12,666 2,567 25,489 17,893
105
100 110 EPS (Rs) 9.23 7.55 1.53 16.68 11.71
95
100 EPS growth (% YoY) (18) (80) 990 (30)
90
85 90 PE (x) 8.68 10.60 52.32 4.80 6.84
80
75 80 Dividend yield (%) 4.8 7.3 4.3 15.3 7.4
70 70 ROAE (%) 11.5 8.8 1.9 20.3 14
65
60 60 PB (x) 0.83 0.77 0.89 0.86 0.79
Dec 16 Aug 17 Apr 18 Dec 18 Net gearing (%) 23 21 28 57 65
Source: Bloomberg Source: IBES
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
NLC India - N-R India power generation
2,500
2,000
1,500
1,000
FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company
NLC India - N-R India power generation
15
10
0
FY15 FY16 FY17 FY18 FY19
Source: CLSA, CERC
Decline in revenue growth NLC (parent): Revenue and growth - YoY (%)
due to unprecedented 90 (Rsbn) (%) 40
Revenue Growth - YoY (RHS)
power surrender and
passing on benefit to 80 35
discoms in FY18 . . . 30
70
25
60
20
50
15
40
10
30
5
20 0
10 (5)
0 (10)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Capitaline
32
20
30
15
28
10 26
24
5
22
0 20
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Capitaline
NLC India - N-R India power generation
. . . bottom line also faced NLC (parent): PAT and growth - YoY (%)
the same brunt in FY16 and 30 (Rsbn) (%) 40
PAT Growth - YoY (RHS)
FY18 +90%
30
25
20
20
10
15 0
(10)
10
(20)
5
(30)
(80%)
0 (40)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Capitaline
CWIP proportion increasing NLC (parent): Capital work in progress (% of total assets)
on account of major capex 300 (Rsbn) Gross block CWIP (%) 28
plans . . . Other non-current assets WC
CWIP (% of total assets) (RHS) 26
. . . may put short term
24
pressure on ROE 250
22
20
200
18
16
150
14
12
100 10
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company
Flattish BVPS since FY16 NLC (parent): Book value per share
100 (Rs) (%) 10
BVPS Growth - YoY (RHS)
90
8
80
70 6
60
4
50
2
40
30 0
20
(2)
10
(13%)
0 (4)
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Bloomberg
NLC India - N-R India power generation
2.4
2.0
+1sd
1.6
1.2 Avg
0.8
-1sd
0.4
Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17
Source: CLSA, Bloomberg
25
20
15
10
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company, Bloomberg
NLC India - N-R India power generation
Increase in YoY revenue in NLC (parent): Summary profit and loss statement
FY18 offset by power Particulars (Rsm) FY14 FY15 FY16 FY17 FY18
surrender and benefit Revenue 59,672 60,877 56,633 77,790 84,472
passed on to discoms
Ebitda 19,293 19,513 12,831 25,117 30,605
Depreciation (5,173) (4,406) (6,415) (6,831) (8,612)
Ebit 14,120 15,106 6,416 18,286 21,994
Net interest expense 8,432 5,597 3,368 5,055 3,819
Profit before tax 22,552 20,703 9,784 23,341 25,812
Taxes (7,073) (8,037) (7,217) 2,148 (7,919)
Rec PAT 15,479 12,666 2,567 25,489 17,893
Exceptional (460) 3,130 (287) (1,801) 594
Rep PAT 15,019 15,797 2,280 23,688 18,488
Source: CLSA, Capitaline
NTPC
Rs148.60 - BUY
9 January 2019
What is happening to ROE under-recovery?
Whatever could go wrong, did. NTPC ROE fell to a 10-year low in FY17. We
India turned positive as we see ROE rising by 240bps over FY18-21. Drivers, apart
from new plant starts, are lower coal plant operations-related under-recovery.
Power Management halved the UR to Rs6bn for FY19. Unchahar plant (UR 35bps ROE)
Reuters NTPC.NS starting in mid-December should also help. Strategies to boost coal supplies
Bloomberg NTPC IS include: about 3x captive coal production to 6.4mtpa, approval to import 2.5mt of
Priced on 7 January 2019 coal during 4QFY19, and new 5mtpa of short-term coal from CIL by March 2019.
CNX Nifty @ 10,771.8
12M hi/lo Rs178.55/136.20 Capacity additions on track; regulated equity to grow by 53% FY18-21CL
We expect NTPC to add 11.3GW of thermal capacity at the parent over FY18-
12M price target Rs180.00
±% potential +21%
21CL, leading to 53% regulated-equity growth FY18-21CL vs 40% FY15-18CL,
driving a 13% EPS Cagr. It should commercialise 3.3GW of capacity in FY19CL,
Shares in issue 8,245.5m
31.8%
leading to 15% YoY growth in RE by end-FY19CL.
Free float (est.)
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
NTPC - BUY India power generation
Financials at a glance
Year to 31 March 2017A 2018A 2019CL (% YoY) 2020CL 2021CL
NTPC - BUY India power generation
423 425
420
425 414
398
394
400
369 369
375
350
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
5,000
4,000
3,000
2,000
1,000
0
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
NTPC - BUY India power generation
79
78
77
76
75
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Source: CLSA, CEA
NTPC - BUY India power generation
India’s captive coal-mine production by private IPPs also missed its lofty target
led by a failed coal-mine auction. Of government companies allocated mines, only
NTPC seems to have taken some serious action to execute it and plans 56mtpa
capacity from its five coal mines , containing 3.9bt of reserves.
NTPC’s first mine, Pakri Barwadih, will contribute about 6mtpa (3% of its own
consumption) in FY19. With this, NTPC could account for 18% of India’s captive
coal-mine production by power utilities in FY19 (second year of its mining
business). Its target to double production to 12.5mtpa by FY21 should help it
contribute 28% to India’s captive mine production by power companies. It also
targets 4x scale-up in its captive coal production over FY21-26 to reach 50mtpa
production by FY26.
Kerandari 6 0.3
Total 56 3.9
Source: CLSA, Company
NTPC - BUY India power generation
Given Bongaigaon is Bongaigaon 500 10.8 16.5 28.9 38.7 44.2 91.8 92.3 88.5 84.3 84.6
GAS BASED Capacity Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
stabilising, PAF has CAPACITIES (MW)
improved substantially Capacity < normative 0 0 0 0 0 26 26 26 20 20
PAF (% of capacity)
Capacity < normative 0 0 0 0 0 13 13 13 38 38
PAF (% of reg. equity)
656
A pick-up in its captive mine Kawas GPS 99.1 99.4 99.6 99.1 98.0 95.7 96.6 97.3 97.2 97.3
Gandhar GPS 657 96.5 94.4 94.8 94.4 92.4 89.8 87.7 83.5 81.2 79.5
production, improving
Anta GPP 419 93.2 93.7 92.7 92.1 93.0 85.0 87.6 89.4 90.0 90.9
supply from CIL, the end of Auraiya GPP 663 92.5 93.0 90.2 88.8 89.9 86.6 88.9 90.4 91.2 91.6
maintenance at Rihand, Dadri GPP 830 90.3 91.2 90.4 90.4 91.5 75.0 79.5 82.4 84.2 86.0
Singrauli and Vindhyachal Hydro based capacities Capacity Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
and good wind generation (MW)
Koldam HEP 800 105.5 105.7 104.8 104.1 103.6 106.9 107.5 107.8 108.1 107.8
should aid improving PAF
Singrauli SHEP 8 - - - - - 66.4 66.4 66.4 66.4 53.2
from 3QFY19 onwards Weighted avg PAF Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
Coal based 79.1 79.7 79.8 79.5 79.5 79.5 79.2 79.3 79.5 80.0
Gas based 83.0 83.0 83.0 83.0 83.0 82.0 82.5 82.9 82.3 81.7
Note: Each month is on a cumulative basis, plant-wise regulated equity has been estimated for the calculation.
Source: CLSA, Regional Energy Account
NTPC - BUY India power generation
NTPC - BUY India power generation
44,500
41,000 800
40,000
40,522
39,000
38,000
Mauda
Rojmal
Unchahar
FY17
Mandsaur
FY18
Kudgi
Solapur
Bongaigaon
Kudgi
Singrauli
(U-1)
(U-2)
Wind
Solar PV
(U-2)
(U-1)
SHEP
(U-1)
(U-2)
Many of the projects at NTPC are close to reaching the finishing line
We model 11.3GW of capacity to be commissioned in FY19-21. Of this, NTPC
has already spent 80% of the cost in 70% of the projects, improving project-start
visibility.
45,000 800
44,000
44,500
43,000
42,000
Darli Palli
FY18
FY19CL
(U-1)
RES
Kudgi
Solapur
Bongaigaon
(U-3)
Lara
(U-2)
(U-1)
(U-3)
NTPC - BUY India power generation
52,630
800
FY20CL over FY19CL
49,000
800
48,000
48,310
47,000
46,000
Tanda
FY19CL
Gadarwara
(U-2)
(U-1)
(U-2)
RES
FY20CL
Lara
(U-1)
NK
DP
(U-1)
We see a significant pick-up NTPC capex for commercialised projects - Those starting to earn an ROE (Rsbn)
in COD for the capex to be 400 (Rsbn) Anantpur Barh - I
incurred over FY18-21CL 17 Barh - II Bhadla
30
350 46 Bongaigaon Darli Palli
46
300 Farakka - III Gadarwara
48
17 48
Karimnagar - I Khargone STPP
250 47
40 59 40 Koldam Hydro Kudgi - I
We expect NTPC to add NTPC commercialised projects - Those starting to earn an ROE in FY17-21CL
11.2GW of capacity at the 6,000 (MW) Anantpur Barh - I
the parent level over
FY18-21CL Bhadla Bongaigaon
5,000 520
Darli Palli Gadarwara
660
4,000 660
Karimnagar - I Khargone STPP
500
660
660
600
Koldam Hydro Kudgi - I
660
3,000 500
500 Lara - I Mandsaur
660
660
660
800 North Karanpura Other solar / wind
2,000 250 800
800
800
Singrauli Hydro Solapur
660 800
1,000 1600 800
Tanda Tapovan Vishnugad
250 800
260 800 660 Vindhyachal - V Unchahar - IV
250 250 250
0
FY17 FY18 FY19CL FY20CL FY21CL Mauda-II Rojmal wind
Source: CLSA, Company
NTPC - BUY India power generation
861
400
780
674
300
586
509
440
414
200
369
351
326
272
254
237
100
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
FY22CL
Source: CLSA, Company
We estimate NTPC to NTPC (parent): thermal capacity additions (CLSA estimates vs NTPC’s targets)
slightly under-perform its 5,000 (MW)
CLSA est. NTPC target
capacity addition targets for
FY19-20
4,000
3,000
4,240
4,240
2,000
3,720
3,580
3,440
3,310
2,120
1,000
-
0
FY19 FY20 FY21 FY22
Source: CLSA, Company
NTPC - BUY India power generation
NTPC - BUY India power generation
NTPC - BUY India power generation
Net savings will be shared 50:50 between the discom and the generator.
Our basis of estimate suggests cost savings from MOO reform to save Rs11bn on
a net basis for discoms and add Rs5-6bn to NTPC PAT. Implementation of MOO
could begin from 1QFY20.
Korba I & II
Ramagundem III
Rihand I
Vindhyachal III
Sipat I
Dadri Coal I
Unchahar II
Talcher Kaniha I
Vindhyachal IV
Tanda
Simhadri I
Kahalgaon II
Rihand III
Barh-II
Korba III
Vindhyachal II
Unchahar I
Farakka I & II
Kahalgaon I
Vindhyachal V
Ramagundem I & II
Badarpur
Dadri Coal II
Rihand II
Sipat II
Vindhyachal I
Talcher Kaniha II
Singrauli
Mouda I
Unchahar III
NTPC - BUY India power generation
We believe NTPC will turn NTPC net profit, capex and free cash flow
FCF positive by FY20CL 200 (Rsbn)
Free cashflow Net profit Capex
150
100
50
0
(50)
(100)
(150)
(200)
(250)
(300)
(350)
FY13 FY14 FY15 FY16 FY17 FY18 FY19CL FY20CL FY21CL FY22CL
Source: CLSA, Company
350
300
250
200
150
100
50
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19CL FY20CL FY21CL FY22CL
Source: CLSA, Company
2,000 80
1,500 60
1,000 40
500 20
0 0
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
NTPC - BUY India power generation
The increase in CWIP as a NTPC’s increase in CWIP as a percentage of total fixed assets led to a lower ROE
percentage of total fixed 16 (%) (%) 40
assets led to a decline in ROE (LHS) CWIP - % of total fixed assets
ROE during FY09-2016 35
14
We expect ROE to improve
30
from FY17, as the
proportion of CWIP to total 12
25
fixed assets declines
10 20
15
8
10
6
5
4 0
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19CL
FY20CL
FY21CL
Source: CLSA, Company
. . . NTPC is trading
below 12.5
-2sd +1sd
11.5
Avg
10.5
-1sd
9.5
-2sd
PE
8.5
Dec 13
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Dec 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
NTPC - BUY India power generation
Dec 12
Apr 16
Sep 16
Dec 17
Aug 09
Aug 14
Jul 12
Jul 17
Nov 10
Oct 13
Nov 15
Oct 18
Mar 09
Feb 12
Mar 14
Feb 17
Jan 10
Jun 10
May 13
Jan 15
Jun 15
May 18
Source: CLSA
Power
Adani Transmission ADANI IN SELL 200 3,138 23.7 33.2 28.3 12.5 11.4 4.6 4.0 239 184 15 15 0.3 0.5
CESC² CESC IB BUY 653 1,233 6.7 6.0 5.5 4.4 3.9 0.6 0.5 40 30 9 11 1.8 2.0
JSW Energy JSWE.BO SELL 70 1,640 11.2 11.6 10.7 5.0 5.5 1.0 1.0 106 89 9 9 4.3 4.7
NTPC NTPC IS BUY 149 17,373 13.9 10.6 9.6 6.4 6.0 1.1 1.1 123 117 11 11 3.3 4.2
Power Grid PWGR IB O-PF 198 14,814 9.8 10.9 10.7 7.0 6.8 1.7 1.6 229 217 17 15 2.8 2.8
Tata Power TPWR IB BUY 75 2,875 13.8 12.2 10.7 5.7 5.0 1.3 1.2 232 192 12 12 1.8 1.9
Power average 14.1 12.6 7.6 7.0 1.7 1.6 161 138 12 12 2.4 2.7
¹ Adani Power ratios taken as ‘na’ to account for negative equity in FY19/20CL. ² CESC adjusted for subsidiary numbers. Source: CLSA
NTPC’s PLF improved by NTPC thermal PLF vs the all-India thermal PLF
about 300bps in November 90 (%) NTPC PLF All India PLF
2018 over November 2017
85
80
75
70
65
60
55
Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18
Source: CLSA, CEA
NTPC - BUY India power generation
(5)
(10)
(15)
Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18
Source: CLSA, CEA
15
5
0
10
(5)
5
(10)
0 (15)
Dec 12
Sep 13
Dec 13
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
1.4 80
60
1.2
40
1.0
20
0.8
0
0.6
(20)
0.4 (40)
0.2 (60)
0.0 (80)
Dec 12
Sep 13
Dec 13
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
NTPC - BUY India power generation
NTPC - BUY India power generation
NTPC - BUY India power generation
NTPC - BUY India power generation
Valuation details
We value NTPC using a DCF-based valuation methodology. We assume a 7.75%
risk-free rate, 5.5% equity-risk premium and 0.83 beta to calculate a CoE of
12.3%. Improved capitalisation can give a much-needed boost to earnings and
return ratios for NTPC. Improvement in PLFs and coal production would be
positive events but would have a limited impact on earnings in the near term.
Investment risks
Delay in equipment ordering/capex, lower utilisation rates and lower incentives at
its coal-based power plants can lead to a structural slowdown in NTPC’s earnings
growth and a peak in its ROEs.
No coverage N-R
200
180
160
140
120
May 16 Sep 16 Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18 Jan 19
NTPC - BUY India power generation
Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Revenue 731,338 731,960 783,865 849,035 938,252 1,072,197 1,240,214
Cogs (ex-D&A) (488,336) (437,986) (475,722) (483,155) (528,349) (616,346) (726,852)
Gross Profit (ex-D&A) 243,002 293,974 308,144 365,881 409,903 455,851 513,362
Research & development costs - - - - - - -
Selling & marketing expenses - - - - - - -
Other SG&A - - - - - - -
Other Op Expenses ex-D&A (85,320) (98,553) (101,899) (139,259) (144,238) (149,874) (155,973)
Op Ebitda 157,683 195,421 206,244 226,622 265,665 305,977 357,389
Depreciation/amortisation (49,117) (51,723) (59,208) (70,989) (80,578) (96,876) (113,137)
Op Ebit 108,566 143,697 147,036 155,633 185,087 209,101 244,251
Interest income 28,094 11,654 10,689 17,553 18,377 20,110 22,596
Interest expense (27,436) (32,964) (35,972) (39,843) (52,093) (61,980) (72,462)
Net interest inc/(exp) 658 (21,311) (25,283) (22,290) (33,716) (41,869) (49,866)
Associates/investments - - - - - - -
Forex/other income - - - - - - -
Asset sales/other cash items - - - - - - -
Provisions/other non-cash items - - - - - - -
Asset revaluation/Exceptional items - - - - - - -
Profit before tax 109,224 122,387 121,753 133,343 151,372 167,231 194,386
Taxation (22,436) (26,082) (28,563) (28,426) (35,445) (38,963) (39,436)
Profit after tax 86,788 96,304 93,189 104,917 115,927 128,268 154,950
Preference dividends - - - - - - -
Profit for period 86,788 96,304 93,189 104,917 115,927 128,268 154,950
Minority interest 0 0 0 0 0 0 0
Net profit 86,788 96,304 93,189 104,917 115,927 128,268 154,950
Extraordinaries/others 16,121 11,392 663 (1,485) 0 0 0
Profit avail to ordinary shares 102,909 107,696 93,853 103,432 115,927 128,268 154,950
Dividends (24,791) (33,202) (46,693) (50,381) (49,062) (62,041) (74,946)
Retained profit 78,118 74,494 47,159 53,051 66,864 66,227 80,004
Adjusted profit 86,788 96,304 93,189 104,917 115,927 128,268 154,950
EPS (Rs) 10.5 11.7 11.3 12.7 14.1 15.6 18.8
Adj EPS [pre excep] (Rs) 10.5 11.7 11.3 12.7 14.1 15.6 18.8
Core EPS (Rs) 10.5 11.7 11.3 12.7 14.1 15.6 18.8
DPS (Rs) 2.5 3.4 4.8 5.1 4.9 6.2 7.5
NTPC - BUY India power generation
NTPC - BUY India power generation
Cashflow (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Operating profit 108,566 143,697 147,036 155,633 185,087 209,101 244,251
Operating adjustments (5,657) (36,001) (53,183) (52,202) (69,161) (80,832) (89,302)
Depreciation/amortisation 49,117 51,723 59,208 70,989 80,578 96,876 113,137
Working capital changes 26,862 (6,716) 16,175 (42,750) (3,126) 25,524 14,652
Interest paid / other financial expenses - - - - - - -
Tax paid 0 0 0 0 0 0 0
Other non-cash operating items (21,687) (22,843) 6,599 48,659 (10,523) 32,419 37,291
Net operating cashflow 157,200 129,861 175,836 180,328 182,855 283,088 320,030
Capital expenditure (230,905) (282,792) (278,172) (258,415) (264,209) (220,424) (248,030)
Free cashflow (73,705) (152,932) (102,336) (78,087) (81,354) 62,663 72,000
Acq/inv/disposals 7,259 6,391 (5,593) (10,951) (25,815) (17,205) (7,382)
Int, invt & associate div (1,644) 2,530 - - - - -
Net investing cashflow (225,290) (273,872) (283,765) (269,366) (290,024) (237,630) (255,412)
Increase in loans 188,252 71,163 137,104 147,483 134,793 28,897 37,277
Dividends (24,791) (33,202) (46,693) (50,381) (49,062) (62,041) (74,946)
Net equity raised/(buybacks) (119,697) 21,870 2,216 2,414 - - -
Net financing cashflow 43,765 59,831 92,627 99,517 85,730 (33,144) (37,669)
Incr/(decr) in net cash (24,326) (84,180) (15,303) 10,479 (21,438) 12,314 26,949
Exch rate movements - - - - - - -
Opening cash 153,114 128,788 44,608 29,305 39,784 18,346 30,659
Closing cash 128,788 44,608 29,305 39,784 18,346 30,659 57,608
OCF PS (Rs) 19.1 15.7 21.3 21.9 22.2 34.3 38.8
FCF PS (Rs) (8.9) (18.5) (12.4) (9.5) (9.9) 7.6 8.7
DuPont analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit margin (%) 14.8 19.6 18.8 18.3 19.7 19.5 19.7
Asset turnover (x) 0.4 0.4 0.3 0.3 0.3 0.4 0.4
Interest burden (x) 1.0 0.9 0.8 0.9 0.8 0.8 0.8
Tax burden (x) 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Return on assets (%) 4.6 5.5 5.0 4.9 5.2 5.5 6.3
Leverage (x) 2.2 2.4 2.4 2.5 2.6 2.6 2.6
ROE (%) 10.4 11.1 9.9 10.6 11.0 11.5 13.0
EVA® analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit adj for tax 86,265 113,073 112,541 122,455 141,747 160,382 194,699
Average invested capital 1,431,287 1,650,240 1,876,186 2,066,099 2,270,913 2,433,932 2,544,433
ROIC (%) 6.0 6.9 6.0 5.9 6.2 6.6 7.7
Cost of equity (%) 12.5 12.5 12.5 12.5 12.5 12.5 12.5
Cost of debt (adj for tax) 6.4 6.3 6.1 6.3 6.1 6.1 6.4
Weighted average cost of capital (%) 9.4 9.4 9.3 9.4 9.3 9.3 9.4
EVA/IC (%) (3.4) (2.5) (3.3) (3.5) (3.1) (2.7) (1.8)
EVA (Rsm) (48,438) (41,728) (61,843) (71,351) (69,365) (65,999) (45,025)
Source: www.clsa.com
SJVN
Rs25.50 – N-R
Financials
(Rs) (%)
40 120 Year to 31 March 17A 18A 19IBES 20IBES 21IBES
38
110
Revenue (Rsm) 26,793 22,300 25,291 25,726 25,978
36 Net profit (Rsm) 15,754 11,738 12,946 12,804 12,600
100
34 EPS (Rs) 4.01 2.99 3.29 3.26 3.21
32 90 EPS growth (% YoY) (25) 10 (1) (2)
30 PE (x) 6.26 8.4 7.62 7.7 7.83
80
28 SJVN (LHS)
Dividend yield (%) 11.4 8.4 9.2 8.0 7.6
26 Rel to Nifty 70 ROAE (%) 18.04 12.19 12 11.6 11
24 60 PB (x) 0.86 0.92 0.82 0.74 0.68
Dec 16 Aug 17 Apr 18 Dec 18 Net gearing (%) (15) (12) na na na
Source: Bloomberg Source: Company, Capital Line, Bloomberg
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
SJVN - N-R India power generation
Under Investment
Operational Under survey
construction approval
(1.9GW) (0.6GW)
(1.6GW) (1.9GW)
(33%) (10%)
(26%) (31%)
SJVN - N-R India power generation
Street estimates bleak SJVN (parent): Revenue and growth - YoY (%)
revenue numbers for FY19- 30 (Rsbn) (%) 60
Revenue Growth - YoY (RHS)
21
50
25
40
20 30
20
15
10
10 0
(10)
5
(20)
0 (30)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Company, Bloomberg
86
25
84
20
82
15 80
78
10
76
5
74
0 72
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Company, Bloomberg
Flattish PAT on account of SJVN (parent): PAT and growth - YoY (%)
stagnant revenue 20 (Rsbn) (%) 80
PAT Growth - YoY (RHS)
18
60
16
14
40
12
10 20
8
0
6
4
(20)
2
0 (40)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Company, Bloomberg
SJVN - N-R India power generation
B/S stuck in CWIP is low for SJVN (parent): Capital work in progress (as % of total assets)
SJVN when compared with 200 (Rsbn) Gross block CWIP (%) 30
NHPC or NLC Other non-current assets WC
CWIP (% of total assets) (RHS)
25
160
20
120 15
10
80
5
40 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company
10
30
8
25
6
20
4
15
2
10
0
5 (2)
0 (4)
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: CLSA, Bloomberg
1.25
1.15 +1sd
1.05
Avg
0.95
-1sd
0.85
0.75
Nov 10
Nov 11
Nov 12
Nov 13
Nov 14
Nov 15
Nov 16
Nov 17
Nov 18
May 10
May 11
May 12
May 13
May 14
May 15
May 16
May 17
May 18
SJVN - N-R India power generation
18 (%)
. . . however, the stock is a Dividend yield Buyback/capital return yield
strong contender on the 16
dividend yield parameter
14
12
10
(2)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company, Bloomberg
1,700
. . . consensus estimates its
EPS to grow at 2% Cagr 1,600
over FY18-21E
1,500
1,400
1,300
1,200
1,100
1,000
FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company
SJVN - N-R India power generation
Tata Power
Rs74.70 - BUY
9 January 2019 Large integrated private player; holds portfolio across GTD and coal
Tata Power is one of India’s largest integrated private sector players in the power
India market, and the second largest private player after Adani Group, with generation
Power capacity of 10.8GW. It is one of the few IPPs with an about 30% contribution
from clean energy. It has transmission capacity of 3,520ckm, making it the fourth
Reuters TTPW.BO largest private sector company. It provides electricity to 2.5m customers across
Bloomberg TPWR IB
Mumbai, Delhi and Ajmer. It has a strategic 30% stake in Indocoal KPC, which
Priced on 7 January 2019 owns mines in Indonesia, providing a natural hedge against rising coal prices.
CNX Nifty @ 10,771.8
12M hi/lo Rs99.90/61.05 Indo coal spreads down 32%, highest contraction in past 12 quarters
12M price target Rs96.00 Coal Ebitda (KPC + BSSR + coal infra), which accounted for 28% of its
±% potential +28% consolidated number, fell 3% YoY. Spreads contracted to US$16.7/t, down 30%
Shares in issue 2,704.6m YoY, the highest contraction in the past 12 quarters. This was led by the
Free float (est.) 67.0% Indonesian government’s 25% domestic market obligation (DMO) regulation with
Market cap US$2.88bn price caps at US$70/t. Despite the cost of production rising 26% YoY, as coal-
mines were not able to pass on the cost, ASPs rose only 1.7%.
3M ADV US$8.4m
Foreign s'holding 27.1% Divestiture on track; valuations reasonable at 1.2x FY20CL BV
Major shareholders Net debt to equity improved to 2.3x in 2Q19 vs 2.9x (2Q18). It has already
Tata Group 33.0% divested its holdings in defence and Tata Communications, vindicating its stand
LIC of India 11.1%
on accelerated deleveraging of its B/s in FY19. The US$401m sale of its 30%
stake in Arutmin is a step in the right direction. Ahead, we look for the divesture
of Tata Ceramics and Tata Projects (3% of SOTP) by FY20. BUY on deleveraging
Blended ESG Score (%)* by non-core asset sales, expansion in renewables and stock value at 1.2x FY20CL
Overall 51.3 BV. Our target price is based on a SOTP-DCF methodology for its CGPL business,
Country average 63.7 PE multiples for its regulated power utility and EV/Ebitda methodology for its
GEM sector average 57.8 coal businesses.
*Click to visit company page on clsa.com for details
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Tata Power - BUY India power generation
Financials at a glance
Year to 31 March 2017A 2018A 2019CL (% YoY) 2020CL 2021CL
Tata Power - BUY India power generation
IEL
International
(0.38GW)
Tata Power - BUY India power generation
Tata Power 2QFY18: Break-up of consolidated Ebitda Tata Power 2QFY19: Break-up of consolidated Ebitda
Coal Ebitda
Coal Ebitda
28%
29%
Non-coal Non-coal
Ebitda Ebitda
71% 72%
Spreads contracted by 32%, Tata Power coal sales realisation and cost of production
leading to the highest (US$/t)
65 FOB realisation Cost of production
contraction in the past 12
quarters 60
55
50
45
40
35
30
25
20
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
After having expanded for Tata Power: Spread between realisation and cost of production
eight quarters since (US$/t)
40
4QFY16 . . .
35
. . . the spreads contracted
by 19% in 1Q19 and 32% in 30
2Q19 . . .
25
. . . led by the Indonesian
government’s 25% DMO 20
15
10
0
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Tata Power - BUY India power generation
25 (mt) (%) 30
Sales YoY growth (RHS)
20
20
10
15
0
(10)
10
(20)
5
(30)
0 (40)
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
120 80
. . . despite that Tata Power
is unable to take the benefit
100 60
as the prices have been
capped at US$70/t under
the DMO regulation 80 40
60 20
40 0
20 (20)
0 (40)
Sep 13
Dec 13
Sep 14
Dec 14
Sep 15
Dec 15
Sep 16
Dec 16
Sep 17
Dec 17
Sep 18
Dec 18
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
12,000 37,500
10,000
35,000
8,000
32,500
6,000
30,000
4,000
2,000 27,500
0 25,000
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Tata Power - BUY India power generation
52,000
50,000
48,000
46,000
44,000
42,000
40,000
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: CLSA, Company
17,000
15,000
13,000
11,000
9,000
7,000
5,000
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
Tata Power - BUY India power generation
. . . we expect further
reduction as non-core
assets shall get divested
Tata Power - BUY India power generation
Tata Power - BUY India power generation
Tata Power - BUY India power generation
Tata Power - BUY India power generation
Valuation details
Our target price is based on a SOTP - DCF methodology for its CGPL business, PE
multiples for its regulated power utility and EV/Ebitda methodology for its coal
businesses. We value its investment in TCS at CLSA target price and recently
entered divestures at their expected realisable value.
Investment risks
Delay in resolution of compensatory tariff issue, sharp correction in international
coal prices, INR depreciation and delay in deleveraging of the balance sheet are
the key risks.
No coverage N-R
100
90
80
70
60
Tata Power - BUY India power generation
Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Revenue 343,669 286,929 272,113 295,121 339,712 349,731 361,151
Cogs (ex-D&A) (166,441) (170,886) (169,114) (180,141) (191,455) (203,660) (216,827)
Gross Profit (ex-D&A) 177,227 116,043 102,999 114,980 148,256 146,071 144,324
Research & development costs - - - - - - -
Selling & marketing expenses (51,895) (21,576) (22,052) (26,523) (28,645) (30,937) (33,412)
Other SG&A - - - - - - -
Other Op Expenses ex-D&A (55,927) (31,074) (29,342) (28,316) (44,733) (36,273) (29,595)
Op Ebitda 69,405 63,393 51,605 60,140 74,878 78,861 81,317
Depreciation/amortisation (21,742) (16,487) (19,886) (24,183) (23,874) (23,959) (23,650)
Op Ebit 47,663 46,906 31,719 35,957 51,004 54,903 57,667
Interest income 3,523 913 2,022 3,196 2,678 2,678 2,678
Interest expense (36,993) (32,358) (31,140) (36,530) (39,860) (37,996) (37,746)
Net interest inc/(exp) (33,470) (31,445) (29,118) (33,334) (37,181) (35,318) (35,067)
Associates/investments - - - - - - -
Forex/other income - - - - - - -
Asset sales/other cash items - - - - - - -
Provisions/other non-cash items - - - - - - -
Asset revaluation/Exceptional items - - - - - - -
Profit before tax 14,193 15,461 2,601 2,623 13,822 19,585 22,600
Taxation (10,556) (6,803) 458 (1,699) (8,124) (10,197) (10,623)
Profit after tax 3,637 8,658 3,059 924 5,698 9,388 11,977
Preference dividends - - - - - - -
Profit for period 3,637 8,658 3,059 924 5,698 9,388 11,977
Minority interest (2,410) 618 10,142 13,414 10,877 9,415 9,175
Net profit 1,227 9,276 13,202 14,339 16,575 18,802 21,152
Extraordinaries/others 0 0 0 0 0 0 0
Profit avail to ordinary shares 1,227 9,276 13,202 14,339 16,575 18,802 21,152
Dividends (3,372) (3,372) (2,814) (3,246) (3,679) (3,896) (4,004)
Retained profit (2,145) 5,904 10,388 11,092 12,896 14,907 17,148
Adjusted profit 1,227 9,276 13,202 14,339 16,575 18,802 21,152
EPS (Rs) 0.5 3.4 4.9 5.3 6.1 7.0 7.8
Adj EPS [pre excep] (Rs) 0.5 3.4 4.9 5.3 6.1 7.0 7.8
Core EPS (Rs) 0.5 3.4 4.9 5.3 6.1 7.0 7.8
DPS (Rs) 1.0 1.0 1.0 1.2 1.4 1.4 1.5
Tata Power - BUY India power generation
Tata Power - BUY India power generation
Cashflow (Rsm)
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Operating profit 47,663 46,906 31,719 35,957 51,004 54,903 57,667
Operating adjustments - - - - - - -
Depreciation/amortisation 21,742 16,487 19,886 24,183 23,874 23,959 23,650
Working capital changes (5,670) (37,555) 57,369 (25,103) 52,950 5,247 (752)
Interest paid / other financial expenses (33,842) (32,358) (31,140) (36,530) (39,860) (37,996) (37,746)
Tax paid 0 0 0 0 0 0 0
Other non-cash operating items (3,925) (6,803) 458 (1,699) (4,587) (15,689) (18,596)
Net operating cashflow 25,967 (13,323) 78,292 (3,192) 83,381 30,424 24,223
Capital expenditure (34,239) 16,318 (111,847) (7,247) (29,122) (14,705) (14,999)
Free cashflow (8,272) 2,995 (33,554) (10,439) 54,259 15,719 9,225
Acq/inv/disposals (2,022) 65,594 2,107 (11,201) (2,774) (3,051) (3,357)
Int, invt & associate div (173) (7,997) (8,002) 16,865 (3,383) (3,743) (3,961)
Net investing cashflow (36,434) 73,915 (117,742) (1,583) (35,279) (21,499) (22,316)
Increase in loans (2,697) (32,245) 43,937 (18,543) 67,696 17,972 50,409
Dividends (5,121) (2,814) (2,814) (3,246) (3,679) (3,896) (4,004)
Net equity raised/(buybacks) 20,692 (34,283) 2,653 36,270 15,942 18,213 20,792
Net financing cashflow 11,496 (68,970) 42,361 7,090 72,568 27,734 56,972
Incr/(decr) in net cash 1,028 (8,378) 2,911 2,316 120,670 36,658 58,879
Exch rate movements 0 - - - - - -
Opening cash 13,981 15,009 6,631 9,542 11,858 132,528 169,186
Closing cash 15,009 6,631 9,542 11,858 132,528 169,186 228,065
OCF PS (Rs) 10.2 (4.9) 28.9 (1.2) 30.8 11.2 9.0
FCF PS (Rs) (3.3) 1.1 (12.4) (3.9) 20.1 5.8 3.4
DuPont analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit margin (%) 13.9 16.3 11.7 12.2 15.0 15.7 16.0
Asset turnover (x) 0.5 0.4 0.4 0.4 0.4 0.4 0.4
Interest burden (x) 0.3 0.3 0.1 0.1 0.3 0.4 0.4
Tax burden (x) 0.3 0.6 1.2 0.4 0.4 0.5 0.5
Return on assets (%) 1.7 3.6 4.9 1.5 2.4 2.8 3.1
Leverage (x) 4.7 4.8 5.6 5.3 4.8 4.7 4.5
ROE (%) 2.3 5.7 2.3 0.6 3.2 4.7 5.5
EVA® analysis
Year to 31 March 2015A 2016A 2017A 2018A 2019CL 2020CL 2021CL
Ebit adj for tax 12,214 26,267 37,306 12,669 21,026 26,317 30,562
Average invested capital 567,261 520,703 481,735 472,495 448,114 450,218 441,216
ROIC (%) 2.2 5.0 7.7 2.7 4.7 5.8 6.9
Cost of equity (%) 14.5 14.5 14.5 14.5 14.5 14.5 14.5
Cost of debt (adj for tax) 2.6 5.6 11.8 3.5 4.1 4.8 5.3
Weighted average cost of capital (%) 8.5 10.0 13.1 9.0 9.3 9.6 9.9
EVA/IC (%) (6.4) (5.0) (5.4) (6.3) (4.6) (3.8) (3.0)
EVA (Rsm) (36,181) (26,064) (25,950) (29,911) (20,699) (17,114) (13,118)
Source: www.clsa.com
Torrent Power
Rs264.05 – N-R
Financials
(Rs) (%)
310 130 Year to 31 March 16A 17A 18A 19E 20E
125
290 Revenue (Rsm) 116,805 100,001 115,121 132,582 152,236
120
270 115 Net profit (Rsm) 9,002 4,290 9,423 10,175 11,409
250 110 EPS (Rs) 18.9 8.9 19.6 21.2 23.7
105
230 EPS growth (% YoY) 133 -53 120 8 12
100
210 95 PE (x) 13.4 28.4 12.9 12.0 10.7
190 90 Dividend yield (%) 2.8 0.0 1.1 na na
85
170 Torrent Power ROAE (%) 13.9 6.4 12.9 11.9 11.9
Rel to Nifty (RHS) 80
150 75 PB (x) 1.9 1.8 1.6 1.4 1.2
Dec 16 Aug 17 Apr 18 Dec 18 Net gearing (%) 94.9 108.6 108.4 na na
Source: Bloomberg Source: Company
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Torrent Power - N-R India power generation
Under-
Operational Operational
cons.
20
15
10
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: CLSA, Company
Torrent Power - N-R India power generation
Street expects revenue to Torrent Power (consolidated): Revenue and YoY growth
grow at constant rate over 160 (Rsbn) (%) 25
Revenue Growth - YoY (RHS)
FY19-20
140 20
120
15
100
10
80
5
60
0
40
20 (5)
0 (10)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: CLSA, Capitaline
25 20
20 15
15
10
10
5
5
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: CLSA, Capitaline
FY14 was a challenging year Torrent Power (consolidated): PAT and YoY growth
for gas-based power 14 (Rsbn) (%) 300
PAT Growth - YoY (RHS)
companies on account of
non-supply from the KG-D6 12 250
basin . . .
200
10
. . . and consensus forecasts
a 10% profit Cagr over 150
FY18-20 8
100
6
50
4
0
2 (50)
0 (100)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: CLSA, Capitaline
Torrent Power - N-R India power generation
Unviable gas-based new Torrent Power (consolidated): Capital work in progress and as % of total assets
power generation led an 250 (Rsbn) Gross block CWIP (%) 45
end to Torrent's generation Other non-current assets WC
company capex, leading to CWIP (% of total assets) (RHS) 40
fall in CWIP from FY14 . . .
35
200
. . . while start of large 30
renewable (wind) capex
could drive future spending 25
150
20
15
100
10
50 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Capitaline
Book value is expected to Torrent Power (consolidated): Book value per share
grow at constant rate over 250 (Rs) (%) 20
BVPS Growth - YoY (RHS)
FY19-20
200 15
150 10
100 5
50 0
0 (5)
FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: CLSA, Bloomberg
2.7
2.2 +1sd
1.7
Avg
1.2
-1sd
0.7
0.2
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18
Source: CLSA, Bloomberg
Torrent Power - N-R India power generation
Very volatile PAT over the Torrent Power (consolidated): Summary profit and loss statement
past few years Particulars (Rsm) FY14 FY15 FY16 FY17 FY18
Revenue 86,811 103,960 116,805 100,001 115,121
Ebitda 13,135 20,799 30,616 24,603 31,171
Depreciation (5,846) (7,205) (9,157) (10,059) (11,315)
Ebit 7,289 13,594 21,459 14,544 19,856
Net interest expense (4,540) (5,961) (8,489) (8,671) (5,846)
Profit before tax 2,749 7,634 12,970 5,873 14,010
Taxes (1,670) (3,777) (3,874) (1,576) (4,489)
Rec PAT 1,079 3,857 9,097 4,298 9,521
Minority and associates (26) (30) (20) (8) (98)
Rec PAT (after MI and associates) 1,053 3,827 9,076 4,290 9,423
Exceptional - (230) (74) - -
Rep PAT (after MI and associates) 1,053 3,597 9,002 4,290 9,423
Source: CLSA, Capitaline
CWIP has remained at same Torrent Power (consolidated): Summary balance sheet
level since FY15, reflecting Particulars (Rsm) FY14 FY15 FY16 FY17 FY18
lack of capacity expansion Shareholder fund 62,053 65,557 64,705 68,921 77,195
Minority interest 296 308 301 289 359
Long-term borrowings 87,446 82,559 81,984 81,934 85,637
Other non-current liabilities 18,642 20,161 31,475 31,747 34,954
Total equity and liabilities 168,437 168,584 178,464 182,892 198,146
Net block 101,747 150,782 151,289 168,035 178,707
CWIP 45496.1 2330.3 2132.9 3320.9 3925.1
Other non-current assets 2,950 1,748 9,188 6,383 8,958
Trade receivables 8,036 8,924 10,570 9,751 11,305
Cash and cash equivalents 15,582 17,703 7,797 2,693 3,176
Other current assets 17,445 14,838 15,141 17,743 19,851
Short-term borrowings - (1,096) - (766) -
CM of long-term borrowings (7,189) (9,892) (3,164) (4,981) (7,344)
Trade payables (6,354) (6,339) (7,359) (7,338) (6,587)
Other current liabilities (9,276) (10,414) (7,131) (11,949) (13,844)
Net current assets 18,244 13,724 15,853 5,153 6,555
Total assets 168,437 168,584 178,464 182,892 198,146
Source: CLSA, Capitaline
Torrent Power - N-R India power generation
Low and volatile dividend Torrent Power (consolidated): Total shareholder yield
yield over past few years 4.5 (%)
Dividend yield Buyback/capital return yield
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: CLSA, Company, Bloomberg
. . . with an operational
capacity of 3.6GW divided
into thermal/renewables at
84:16, with 75% being gas-
based capacity
Source: Company
Torrent Power - N-R India power generation
In addition to improving
distribution volume, AT&C
losses have come down
Source: Company
Source: Company
Torrent Power - N-R India power generation
Notes
Appendices India power generation
Rajasthan, UP and TN are State Utilities - Energy Consumption (Mkwh), debt and loss (FY14)
the weakest links of the 50 SEB profit/loss without subsidy (Rsbn)
power value chain Gujarat
0 Delhi Karnataka Maharashtra
(50) Punjab AP
Haryana
(100) MP
(150)
TN Rajasthan
(200)
UP
(250)
SEB Debt (Rsbn)
(300)
100 200 300 400 500 600 700 800 900 1,000 1,100
Source: Government, PFC, CLSA
The key reasons why this plan has a higher chance of success is that it is focused
on cost cutting, rather than tariff hikes. Bank funding will only be for discom
losses approved by the government and will enforce financial discipline on
discoms through alignment with state finances. Below we show how discoms
could have path-to-zero losses by FY19.
Appendices India power generation
States will issue non-SLR, including SDL bonds in the market or directly to the
respective banks/financial institutions (FIs) holding the discom debt to the
appropriate extent.
Banks/FIs will convert discom debt not taken over by the state into loans or
bonds with an interest rate not more than the bank’s base-rate plus 0.1%.
Alternately, this debt may be fully or partly issued by the discom as state-
guaranteed discom bonds at prevailing market rates, which will be equal to or
less than the bank base rate plus 0.1%.
States accepting UDAY and performing as per operational milestones will be given
additional/priority funding through the Rs760bn Deendayal Upadhyaya Gram Jyoti
Yojana (DDUGJY), Rs654bn Integrated Power Development Scheme (IPDS), Power
Sector Development Fund (PSDF) or other of MOP and Ministry of New and
Renewable Energy schemes.
Appendices India power generation
States not meeting operational milestones are subject to forfeit their claims on
IPDS (scheme to ensure 24/7 power for all) and DDUGJY (rural electrification
scheme) grants.
UDAY is optional for all states. However, states are encouraged to take the
benefit early as benefits are dependent on performance.
Appendices India power generation
Appendices India power generation
Project can deliver 16% India Wind: Equity IRR of SECI third wind auction (Tariff - Rs2.44/kWh)
equity IRR Bid III (300 MW) (Rsm) Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
Generation (MUs) 951 1,004 1,004 1,004 1,004 1,004
Power sale 2,321 2,449 2,449 2,449 2,449 2,449
Ebitda 2,275 2,400 2,299 2,293 2,287 2,280
Depreciation - (602) (602) (602) (602) (602) (602)
Interest - (1,218) (1,318) (1,276) (1,168) (1,083) (1,032)
PBT 461 519 505 636 750 835
Tax (98) (111) (108) (136) (160) (178)
PAT 363 408 397 500 590 657
Cashflow
Rec .PAT - - 363 408 397 500 590 657
(+) Depreciation - - 602 602 602 602 602 602
Total - - 964 1,010 999 1,102 1,192 1,259
Capex (9,500) (7,600) (1,900) - - - - -
Debt funding/(repayment) 7,125 5,700 1,425 - (602) (602) (602) (602)
Working capital (387) (21) - - - -
Net cashflow to equity (2,375) (1,900) 103 988 397 500 590 657
Equity IRR (%) 16.0
Source: CLSA, SECI
A 100bps change in PLF and SECI III Tariff: Sensitivity to PLF and Interest cost
50bps change in long-term (%) PLF (%)
interest rates can change 36.2% 37.2% 38.2% 39.2% 40.2%
equity IRR by 130bps 7.5% 15.2 15.9 16.8 17.5 18.4
Int. 8.0% 14.7 15.5 16.4 17.3 18.0
cost 8.5% 14.2 15.2 16.0 16.9 17.6
(%) 9.0% 13.9 14.7 15.7 16.4 17.3
9.5% 13.4 14.3 15.2 16.0 16.9
Source: CLSA
Gamesa has introduced the Siemens Gamesa - SG 2.1-122 vs 114: Boasts of higher energy from swept area
longest blades of 60 metres
vs 56 metres to hike energy
capture by 7% from the
same turbine
Appendices India power generation
Appendices India power generation
Appendices India power generation
Appendices India power generation
Important disclosures India power generation
Companies mentioned
ABB Ltd (N-R)
Adani Enterprises (N-R)
Adani Power (ADANI IB - RS50.4 - SELL)
Adani Transmission (ADANIT IN - RS200.2 - SELL)
Avantha Group (N-R)
Banpu (BANPU TB - BT16.4 - BUY)
Bharat Heavy Elec (BHEL IB - RS72.2 - SELL)
Bharatpur Electricity Services (N-R)
Bharti Infratel (BHIN IS - RS293.8 - O-PF)
Bikaner Electricity Supply (N-R)
BSEB (N-R)
CESC (CESC IB - RS653.2 - BUY)
CGPL (N-R)
Cheung Kong Infra (1038 HK - HK$60.00 - BUY)
China Power (2380 HK - HK$1.80 - U-PF)
CLP (2 HK - HK$89.90 - SELL)
Coal India (COAL IS - RS234.5 - BUY)
CR Power (836 HK - HK$15.84 - BUY)
Cummins (N-R)
Datang Power (991 HK - HK$1.85 - O-PF)
EEPL (N-R)
Egco (EGCO TB - BT247.0 - BUY)
Electricite de France (N-R)
Gail (GAIL IB - RS357.2 - BUY)
Gamesa Corp Tec (N-R)
GE Power (N-R)
GE T&D (N-R)
Glow Energy (GLOW TB - BT88.5 - O-PF)
GMR Infrastructure (N-R)
Gujarat Gas (GUJGA IN - RS657.0 - BUY)
Gujarat Petronet (GUJS IB - RS175.0 - BUY)
Haryana Power (N-R)
HK & China Gas (3 HK - HK$16.44 - SELL)
HK Electric (2638 HK - HK$8.12 - SELL)
HN Renewables (958 HK - HK$2.10 - BUY)
Huadian Fuxin (816 HK - HK$1.80 - BUY)
Huadian Power (1071 HK - HK$3.56 - O-PF)
Huaneng Power (902 HK - HK$5.03 - U-PF)
Indian (N-R)
Indocoal KPC (N-R)
Indraprastha Gas (IGL IS - RS273.6 - BUY)
Jaigad Power (N-R)
Jaiprakash Power (N-R)
JSW Energy (JSW IB - RS70.0 - SELL)
JSW Green (N-R)
JSW Group (N-R)
JSW Steel (JSTL IB - RS289.6 - SELL)
Kalpataru Power (N-R)
KEC (N-R)
Kepco Plant S&E (051600 KS - ₩33,200 - O-PF)
Kota Electricity Distribution (N-R)
KSK Mahanadi Power (N-R)
Important disclosures India power generation
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect
my/our own personal views about the securities and/or the issuers and that no part of my/our compensation was,
is, or will be directly or indirectly related to the specific recommendation or views contained in this research
report.
Important disclosures
The policy of CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) is to herein. In circumstances where an analyst has a pre-existing holding
only publish research that is impartial, independent, clear, fair, and in any securities under coverage, those holdings are grandfathered
not misleading. Regulations or market practice of some and the analyst is prohibited from trading such securities.
jurisdictions/markets prescribe certain disclosures to be made for Unless specified otherwise, CLSA/CLST or its respective
certain actual, potential or perceived conflicts of interests relating to affiliates, did not receive investment banking/non-investment
a research report as below. This research disclosure should be read banking income from, and did not manage/co-manage a public
in conjunction with the research disclaimer as set out at offering for, the listed company during the past 12 months, and it
www.clsa.com/disclaimer.html and the applicable regulation of the does not expect to receive investment banking compensation from
concerned market where the analyst is stationed and hence subject the listed company within the coming three months. Unless
to. Investors are strongly encouraged to review this disclaimer mentioned otherwise, CLSA/CLST does not own 1% or more of any
before investing. class of securities of the subject company, and does not make a
Neither analysts nor their household members/associates/may market, in the securities.
have a financial interest in, or be an officer, director or advisory The analysts included herein hereby confirm that they have not
board member of companies covered by the analyst unless disclosed been placed under any undue influence, intervention or pressure by
Important disclosures India power generation
any person/s in compiling this research report. In addition, the institutional and/or wholesale clients only, and may not be
analysts attest that they were not in possession of any material, distributed to retail investors. The information, opinions and
non-public information regarding the subject company at the time of estimates herein are not directed at, or intended for distribution to
publication of the report. Save from the disclosure below (if any), or use by, any person or entity in any jurisdiction where doing so
the analyst(s) is/are not aware of any material conflict of interest. would be contrary to law or regulation or which would subject CLSA,
As analyst(s) of this report, I/we hereby certify that the views and/or CLST to any additional registration or licensing requirement
expressed in this research report accurately reflect my/our own within such jurisdiction. The information and statistical data herein
personal views about the securities and/or the issuers and that no have been obtained from sources we believe to be reliable. Such
part of my/our compensation was, is, or will be directly or indirectly information has not been independently verified and we make no
related to the specific recommendation or views contained in this representation or warranty as to its accuracy, completeness or
report or to any investment banking relationship with the subject correctness. Any opinions or estimates herein reflect the judgment
company covered in this report (for the past one year) or otherwise of CLSA and/or CLST at the date of this publication/communication
any other relationship with such company which leads to receipt of and are subject to change at any time without notice. Where any
fees from the company except in ordinary course of business of the part of the information, opinions or estimates contained herein
company. The analyst/s also state/s and confirm/s that he/she/they reflects the views and opinions of a sales person or a non-analyst,
has/have not been placed under any undue influence, intervention such views and opinions may not correspond to the published view
or pressure by any person/s in compiling this research report. In of CLSA and/or CLST. Any price target given in the report may be
addition, the analysts included herein attest that they were not in projected from one or more valuation models and hence any price
possession of any material, nonpublic information regarding the target may be subject to the inherent risk of the selected model as
subject company at the time of publication of the report. The well as other external risk factors. Where the publication does not
analysts further confirm that none of the information used in this contain ratings, the material should not be construed as research but
report was received from CLSA's Corporate Finance department or is offered as factual commentary. It is not intended to, nor should it
CLSA's Sales and Trading business. Save from the disclosure below be used to form an investment opinion about the non-rated
(if any), the analyst(s) is/are not aware of any material conflict of companies.
interest. This publication/communication is for information purposes only
Key to CLSA/CLST investment rankings: BUY: Total stock return and it does not constitute or contain, and should not be considered
(including dividends) expected to exceed 20%; O-PF: Total expected as an offer or invitation to sell, or any solicitation or invitation of any
return below 20% but exceeding market return; U-PF: Total offer to subscribe for or purchase any securities in any jurisdiction
expected return positive but below market return; SELL: Total return and neither this publication/communication nor anything contained
expected to be negative. For relative performance, we benchmark herein shall form the basis of any investment decision, contract or
the 12-month total forecast return (including dividends) for the commitment whatsoever. This is not intended to provide
stock against the 12-month forecast return (including dividends) for professional, investment or any other type of advice or
the market on which the stock trades. recommendation and does not take into account the particular
We define as “Double Baggers” stocks we expect to yield 100% investment objectives, financial situation or needs of individual
or more (including dividends) within three years at the time the recipients. Before acting on any information in this
stocks are introduced to our “Double Bagger” list. "High Conviction" publication/communication, you should consider whether it is
Ideas are not necessarily stocks with the most upside/downside, but suitable for your particular circumstances and, if appropriate, seek
those where the Research Head/Strategist believes there is the professional advice, including tax advice. Investments involve risks,
highest likelihood of positive/negative returns. The list for each and investors should exercise prudence and their own judgment in
market is monitored weekly. making their investment decisions. The value of any investment or
Overall rating distribution for CLSA (exclude CLST) only income my go down as well as up, and investors may not get back
Universe: Overall rating distribution: BUY / Outperform - CLSA: the full (or any) amount invested. Past performance is not
69.96%, Underperform / SELL - CLSA: 36.42%, Restricted - CLSA: necessarily a guide to future performance. CLSA and/or CLST
0.09%; Data as of 31 December 2018. Investment banking clients as do/does not accept any responsibility and cannot be held liable for
a % of rating category: BUY / Outperform - CLSA: 0.999%, any person’s use of or reliance on the information and opinions
Underperform / SELL - CLSA: 0.52%; Restricted - CLSA: 0.00%. Data contained herein. To the extent permitted by applicable securities
for 12-month period ending 31 December 2018. laws and regulations, CLSA and/or CLST accept(s) no liability
Overall rating distribution for CLST only Universe: Overall rating whatsoever for any direct or consequential loss arising from the use
distribution: BUY / Outperform - CLST: 44.44%, Underperform / of this publication/communication or its contents.
SELL - CLST: 55.56%, Restricted - CLST: 0.00%. Data as of 31 To maintain the independence and integrity of our research, our
December 2018. Investment banking clients as a % of rating Corporate Finance, Sales Trading, Asset Management and Research
category: BUY / Outperform - CLST: 0.00%, Underperform / SELL - business lines are distinct from one another. This means that CLSA’s
CLST: 0.00%, Restricted - CLST: 0.00%. Data for 12-month period Research department is not part of and does not report to CLSA
ending 31 December 2018. Corporate Finance department or CLSA’s Sales and Trading business.
There are no numbers for Hold/Neutral as CLSA/CLST do not Accordingly, neither the Corporate Finance nor the Sales and
have such investment rankings. For a history of the Trading department supervises or controls the activities of CLSA’s
recommendation, price targets and disclosure information for research analysts. CLSA’s research analysts report to the
companies mentioned in this report please write to: CLSA Group management of the Research department, who in turn report to
Compliance, 18/F, One Pacific Place, 88 Queensway, Hong Kong CLSA’s senior management. CLSA has put in place a number of
and/or; (c) CLST Compliance (27/F, 95, Section 2 Dun Hua South internal controls designed to manage conflicts of interest that may
Road, Taipei 10682, Taiwan, telephone (886) 2 2326 8188). EVA® is arise as a result of CLSA engaging in Corporate Finance, Sales and
a registered trademark of Stern, Stewart & Co. "CL" in charts and Trading, Asset Management and Research activities. Some examples
tables stands for CLSA estimates, “CT” stands for CLST estimates, of these controls include: the use of information barriers and other
"CRR" stands for CRR Research estimates and “CS” for Citic controls designed to ensure that confidential information is only
Securities estimates unless otherwise noted in the source. shared on a “need to know” basis and in compliance with CLSA’s
This publication/communication is subject to and incorporates Chinese Wall policies and procedures; measures designed to ensure
the terms and conditions of use set out on the www.clsa.com that interactions that may occur among CLSA’s Research personnel,
website (https://www.clsa.com/disclaimer.html). Neither the Corporate Finance, Asset Management, and Sales and Trading
publication/communication nor any portion hereof may be reprinted, personnel, CLSA’s financial product issuers and CLSA’s research
sold, resold, copied, reproduced, distributed, redistributed, analysts do not compromise the integrity and independence of
published, republished, displayed, posted or transmitted in any form CLSA’s research.
or media or by any means without the written consent of CLSA Subject to any applicable laws and regulations at any given time,
and/or CLST. CLSA and/or CLST has/have produced this CLSA, CLST, their respective affiliates, officers, directors or
publication/communication for private circulation to professional, employees may have used the information contained herein before
Important disclosures India power generation
publication and may have positions in, or may from time to time to persons who qualify as an "Institutional Investor", "Accredited
purchase or sell or have a material interest in any of the securities Investor" or "Expert Investor"; in Thailand by CLSA Securities
mentioned or related securities, or may currently or in future have or (Thailand) Limited; in Taiwan by CLST and in United Kingdom by
have had a business or financial relationship with, or may provide or CLSA (UK).
have provided corporate finance/capital markets and/or other United States of America: Where any section is compiled by
services to, the entities referred to herein, their advisors and/or any non-US analyst(s), it is distributed into the United States by CLSA
other connected parties. As a result, you should be aware that CLSA solely to persons who qualify as "Major US Institutional Investors" as
and/or CLST and/or their respective affiliates, officers, directors or defined in Rule 15a-6 under the Securities and Exchange Act of
employees may have one or more conflicts of interest. Regulations 1934 and who deal with CLSA Americas. However, the delivery of
or market practice of some jurisdictions/markets prescribe certain this research report to any person in the United States shall not be
disclosures to be made for certain actual, potential or perceived deemed a recommendation to effect any transactions in the
conflicts of interests relating to research reports. Details of the securities discussed herein or an endorsement of any opinion
disclosable interest can be found in certain reports as required by expressed herein. Any recipient of this research in the United States
the relevant rules and regulation and the full details are available at wishing to effect a transaction in any security mentioned herein
http://www.clsa.com/member/research_disclosures/. Disclosures should do so by contacting CLSA Americas.
therein include the position of CLSA and CLST only. Unless specified United Kingdom: In the United Kingdom, this research is a
otherwise, CLSA did not receive any compensation or other benefits marketing communication. It has not been prepared in accordance
from the subject company, covered in this with the legal requirements designed to promote the independence
publication/communication, or from any third party. If investors of investment research, and is not subject to any prohibition on
have any difficulty accessing this website, please contact dealing ahead of the dissemination of investment research. The
webadmin@clsa.com on +852 2600 8111. If you require disclosure research is disseminated in the EU by CLSA (UK), which is authorised
information on previous dates, please contact and regulated by the Financial Conduct Authority. This document is
compliance_hk@clsa.com. directed at persons having professional experience in matters
This publication/communication is distributed for and on behalf relating to investments as defined in Article 19 of the FSMA 2000
of CLSA Limited (for research compiled by non-US and non-Taiwan (Financial Promotion) Order 2005. Any investment activity to which
analyst(s)), and/or CLST (for research compiled by Taiwan analyst(s)) it relates is only available to such persons. If you do not have
in Australia by CLSA Australia Pty Ltd; in Hong Kong by CLSA professional experience in matters relating to investments you
Limited; in India by CLSA India Private Limited, (Address: 8/F, should not rely on this document. Where the research material is
Dalamal House, Nariman Point, Mumbai 400021. Tel No: +91-22- compiled by the UK analyst(s), it is produced and disseminated by
66505050. Fax No: +91-22-22840271; CIN: CLSA (UK). For the purposes of the Financial Conduct Rules this
U67120MH1994PLC083118; SEBI Registration No: INZ000001735 research is prepared and intended as substantive research material.
as Stock Broker, INM000010619 as Merchant Banker and For all other jurisdiction-specific disclaimers please refer to
INH000001113 as Research Analyst,; in Indonesia by PT CLSA https://www.clsa.com/disclaimer.html. The analysts/contributors to
Sekuritas Indonesia; in Japan by CLSA Securities Japan Co., Ltd.; in this publication/communication may be employed by any relevant
Korea by CLSA Securities Korea Ltd.; in Malaysia by CLSA Securities CLSA entity or CLST, which is different from the entity that
Malaysia Sdn. Bhd.; in the Philippines by CLSA Philippines Inc (a distributes the publication/communication in the respective
member of Philippine Stock Exchange and Securities Investors jurisdictions.© 2019 CLSA Limited and/or CL Securities Taiwan Co.,
Protection Fund); in Singapore by CLSA Singapore Pte Ltd and solely Ltd. (“CLST”).
India power generation
Notes
India power generation
Notes
Research & sales offices
www.clsa.com
Hong Kong +852 2600 7003 Singapore +65 6416 7878 At CLSA we support
India +91 22 6622 5000 Taiwan* +886 2 2326 8124 sustainable development.
We print on paper sourced from
Indonesia +62 21 573 9460 Thailand +66 2 257 4611 environmentally conservative
Japan +81 3 4580 5169 UK +44 207 614 7260 factories that only use fibres
from plantation forests.
Korea +82 2 397 8512 US +1 212 408 5800 CLSA is certified ISO14001:2004 Please recycle.
Research subscriptions
To change your report distribution requirements, please contact your CLSA sales representative or email us at cib@clsa.com.
You can also fine-tune your Research Alert email preferences at https://www.clsa.com/member/tools/email_alert/.
© 2019 CLSA Limited (“CLSA”) and/or CL Securities Taiwan Co. Ltd (“CLST”).
Key to CLSA/CLST investment rankings: BUY: Total stock return (including dividends) expected to exceed 20%; O-PF: Total expected return below 20% but
exceeding market return; U-PF: Total expected return positive but below market return; SELL: Total expected return to be negative. For relative performance, we
benchmark the 12-month total forecast return (including dividends) for the stock against the 12-month forecast return (including dividends) for the market on
which the stock trades. • We define as “Double Baggers” stocks we expect to yield 100% or more (including dividends) within three years at the time the stocks
are introduced to our “Double Bagger” list. "High Conviction" Ideas are not necessarily stocks with the most upside/downside but those where the Research
Head/Strategist believes there is the highest likelihood of positive/negative returns. The list for each market is monitored weekly. 01/01/2019