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| Summary of Contents SHAREKHAN SPECIAL Q4FY2011 Power earnings preview - We expect power generation in India to touch approximately 212.9 billion units (BU) during Q4FY2011. This reflects a very healthy growth of 8% year on year (YoY) backed by nearly 12% incremental capacity over the last year. Sequentially, we expect all-India power generation to grow by 6%.
- Given the rising mercury in Q4FY2011, we expect power requirement to grow by 6.3% sequentially and by 4-5% YoY. As a result, we expect the power deficit to be around 8.5% in Q4FY2011 against 7% in Q3FY2011. However, due to significant capacity addition over the last year, the power deficit is expected to fall to 8% against 10% in Q4FY2010.
- The power deficit is likely to be higher compared with the last quarter but lower compared with the last year. The effect of the same should get reflected in the merchant power prices. We believe the merchant power prices are currently hovering around Rs5-7 a unit against Rs3 a unit in Q3FY2011 and Rs8-9 a unit in Q4FY2010.
- In the fourth quarter a major change engulfed most of the power generators in India. Coal India Ltd (CIL), the largest coal miner in the country has raised prices of coal selectively, especially for companies that are not selling power through the regulated route. More or less, a partial impact of this hike should be reflected in the Q4FY2011 performance as the price hike was announced in the later part of February. Nevertheless, we should see the full impact of the same in Q1FY2012 in the form of contraction in the margin of the power generators, especially those with a higher proportion of unregulated power. Even Singareni Collieries Company Ltd (SCCL) is planning to revise its coal prices upward during Q1FY2012.
- We expect the power generation companies to report healthy top line numbers, driven by a higher power offtake and a revival in prices.
- We believe power transmission companies should report a healthy growth in their top line and bottom line over the last year. The transmission and distribution (T&D) and engineering, procurement and construction (EPC) contractors are likely to do well during Q4FY2011, as all of them are having a healthy (around 2x FY2010 sales) order book position. Moreover, traditionally they book higher order into sales during Q4FY2011.
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