Torrent Power
BSE SENSEX
41,559
S&P CNX
12,225
18 December 2019
Update | Sector: Utilities
CMP: INR270
TP: INR346 (+28%)
Buy
Low LNG prices keep UnoSugen up and running
Strong positioning, healthy balance sheet; Maintain Buy
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
We met Torrent Power (TPW) to get an update on the business outlook. Key
TPW IN
takeaways:
481
131.2 / 1.8
314 / 230
-9/7/-9
408
46.4
Plan to increase gas sourcing mix toward spot
Financials Snapshot (INR b)
Y/E Mar
2019 2020E 2021E
Net Sales
131.5 135.1 139.3
EBITDA
32.0
34.5
37.8
PAT
9.0
13.9
13.7
EPS (INR)
18.7
28.8
28.5
Gr. (%)
-4.6
54.1
-1.2
BV/Sh (INR)
186.6 209.5 231.9
RoE (%)
10.8
14.6
12.9
RoCE (%)
8.5
8.6
9.3
P/E (x)
14.6
9.5
9.6
P/BV (x)
1.5
1.3
1.2
Shareholding pattern (%)
As On
Sep-19 Jun-19 Sep-18
Promoter
53.6
53.6
53.6
DII
20.5
18.2
19.6
FII
7.5
7.9
5.8
Others
18.5
20.3
21.1
FII Includes depository receipts
Stock Performance (1-year)
Torrent Power
Sensex - Rebased
320
295
270
245
220
TPW has not tied-up new gas supplies for its UnoSugen PPA (effective from 1
st
Jul’19). Instead, the company is (a) making use of gas tied up for Sugen
(@USD6.5/mmbtu till Dec’20) and (b) buying from spot, as required.
While the Unosugen PPA has a ceiling on the cost of supply (INR5.6/kWh),
current spot contract prices provide significant cushion (Exhibit 2).
TPW believes that the natural gas market would remain oversupplied, and thus
it would increase sourcing from spot contracts. Longer-term contracts
(generally up to 1.5 years) could be entered, but pricing is done with reference
to Brent (slope of ~10-11%) and resulting in higher cost. According to our oil &
gas sector analyst, the glut in global gas supply is likely to continue, given (a)
increasing gas supply from the US and Qatar and (2) plateauing consumption in
China along with possible lower imports from Japan.
TPW has also contracted storage-cum-regasification capacity of 1mtpa at
Petronet LNG’s Dahej terminal for its imports. We note there is capacity in
place to increase offtake, if required. Of the 17.5mtpa capacity at the Dahej
terminal, only ~15.8 mtpa is contracted. Besides, another 5mtpa of capacity is
scheduled to come up in Mundra.
On the domestic front, TPW has participated in domestic gas allocation from
the KG-D6 basin and won supply for 0.25mmscmd.
Lower spot prices, along with sufficient tie-ups of gas contracts, provide
visibility for UnoSugen PPA. We note at current spot prices, cost of generation
is ~INR3.6/kWh versus max. fuel cost of INR4.5 (w/o impacting F/C recoveries).
Not participating in new renewable projects
TPW’s recent renewable projects have faced issues: (1) SECI-III (500MW) was
impacted by weak finances of an EPC contractor, land issues and is now past
the original COD. (2) SECI-V (115MW) has faced issues of land procurement. (3)
SECI-I project has been downsized to 50MW (from original 150MW).
Such projects though are cushioned by bank guarantees. The company has
encashed INR4b of guarantees for SECI-III given the delay. Further, INR1.8b of
investments made in SECI-I have been received back.
The company’s SECI-III and SECI-V projects though have not been terminated.
TPW has asked for an extension in timelines. Progress on SECI-III would depend
on the extension in timelines and a credible plan from the EPC contractor/cost
dynamics for appointing a new contractor.
Aniket Mittal
(aniket.mittal@motilaloswal.com); +9122 7198 5585
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.