Sector Update | 1 December 2017
Utilities
CESC wins 100MW in BEST’s PPA, Tata Power at loss
CESC’s generation portfolio fully secured with PPAs
According to media reports (Mumbai Mirror, dated 1 December 2017), the L1 bidders in
the 750MW five-year PPA bid by BEST DISCOM (Mumbai) were (a) CESC’s Dhariwal and
Adani Power for the base-load PPA of 300MW, (b) Maharashtra DISCOM for the peak-load
PPA of 250MW and (c) Tata Power (TPWR) Trombay for the peak-load PPA of another
200MW. BEST had called the bids in place of its existing PPA with TPWR’s Mumbai
generating assets that are expiring in March 2018. Mumbai has transmission capacity to
import only 300-500MW. The outcome of the bids is likely to be decided by the regulator
and the transmission capacity study, but the base load PPA should get preference. MAH
DISCOM and TPWR have filed for a review of the PPA’s bidding conditions. The case will be
th
heard on 6 December 2017.
st
CESC: Generation portfolio fully secured with PPAs
CESC’s Dhariwal is L1 for 100MW at a price of ~INR3.5/kWh. Being a medium-
term PPA, it will be eligible for coal linkage under the SHAKTI policy. We
estimate additional EBITDA contribution of INR0.9-1.1b.
Dhariwal was recently L1 for another 185MW short-term PPA under the flexible
coal policy by Maharashtra (report
link).
Together, the Dhariwal plant will now be fully secured with PPAs (existing -
100MW TN, 187MW Noida, and new – 100MW BEST and 185MW MAH).
We estimate Dhariwal’s EBITDA will increase from INR0.1b in FY17 to INR4.6b in
FY19 with the full benefit of all the PPAs. It will turn PAT positive, and FCF
generation will improve. This should also drive savings in interest cost (it was
12.9% in FY17). CESC’s consol. PAT will get upgraded by ~13% for FY19/20E.
Post demerger, CESC’s generation entity will have one of the best mix of
capacities among the listed private sector power companies – 2.5GW of capacity
under PPAs, with a predictable cash flow stream.
We will revise our estimates after the outcome and the final approval from the
regulatory commission. We remain positive of CESC with a TP of INR1,360/sh.
Tata Power: Regulated equity of ~INR11b at risk
Of TPWR’s Mumbai generation portfolio of 1.87GW, 500MW was already at risk
of closure (coal+imported gas based). BEST’s PPA puts additional 550MW at risk.
The regulated equity in the asset was INR19.9b in FY17.
Of the remaining 827MW, 180MW is a domestic gas-based plant and 447MW is
hydro, both of which are competitive. The remaining capacity of 200MW, on
imported coal, will be at risk once the transmission issue is resolved in Mumbai.
We were already building in the impact of the closure of the 500MW plant. The
loss of 550MW will result in ~4% cut to our PAT estimates and TP. We maintain
Sell
on Tata Power with a TP of INR72/sh.
Sanjay Jain - Research analyst
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Dhruv Muchhal - Research analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
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November 2017
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Investors are advised to refer through important disclosures made at the last page of the Research Report.