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Power Utilities – India headed to meet Demand ?

November 26, 2010

Leading FII BNP Paribas has downgraded the Indian Power Sector to Negative citing Overcapacity in 2013. India is set to see an unprecedented power generation capacity addition. Can we expect India to enter a slight base-load surplus in FY12, worsening to 16% in FY13 ?

Research indicates a market-clearing price of INR4/kWh, assuming that a majority of thermal power plants operate at 70% utilisation rates. An IPP can improve utilization rates only by pricing its output at or below INR3/kWh – at least a rupee below the market-clearing price.

Forthcoming elections will keep the demand for power strong as Governments will ensure uninterrupted supply. However, supply will exceed demand in 2013 as per the report and companies will see pressure on margins. BNP has changed ratings of Adani Power and Reliance Power to REDUCE and maintained BUY on NTPC. Power GRid as a transmission company is the biggest potential beneficiary of the unprecedented capacity addition in power generation.

Power stocks in India are already quoting at a very high P/E compared to their global peers and hence investors can look forward to exit at the right opportunity.

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