24 DALAL STREET INVESTMENT JOURNAL I JULY 22 - AUG 4, 2019 DSIJ. in^
new consumers. Rising industrial
demand was also a noteworthy
contributor as it gave a boost to
revenues. Contrarily, the slowdown in
the textile and diamond industries
caused the sales in Surat to drop
marginally. The sales in Bhiwandi too
were impacted slightly due to the strike
taking places in the power loom
industry. Fortunately, the ramifications
of this were arrested by a reduction in
aggregate technical & commercial
(AT&C) losses and growth in residential
and commercial consumer sales.
The company succeeded in lowering its
T&D losses further in FY19 as compared
to FY18 and they continue to be the
lowest in India. T&D losses represent
electricity that is generated but does not
reach the intended customers. During
FY19, the company was awarded a
distribution licence for the supply of
electricity in DSIR for 25 years. The
licence area spans across 920 sq. km. and
is a part of the Delhi-Mumbai Industrial
Corridor in Gujarat.
Projects under construction
The company has a number of major
projects under construction such as the
499.8 MW wind power project in
Gujarat and the 126 MW wind power
project in Maharashtra. The former is
scheduled to be commissioned by
November 2019 and is delayed mainly
on account of the land availability issues
prevalent in Gujarat. However, the delay
will not have any material impact on
costs, and the project will be set up at an
expected cost of 3,329 crore. The latter will be commissioned in January 2020 and will be set up at an expected cost of 918 crore. Yet another project is the 115
MW wind power project in Gujarat
which will be set up at an expected cost
of `800 crore and will be commissioned
in July 2020. A 100 MW wind power
project in Gujarat is also in the pipeline
at an estimated cost of `683 crore. This
project, which is being implemented
through SPVs,, is expected to be
commissioned by July 2019.Risks
The AMGEN plant is required to comply
with stricter emission norms by
December 2022 which will require
significant capital expenditure on the
company’s part. Failure to comply could
result in the company having to phase
out the plant on or before December- Of the 851 MW of under-
construction renewable projects, 625
MW worth of projects are enduring
execution challenges which are further
delaying their completion. The
regulatory conditions applicable to the
company’s licensed distribution business
could cause delays in recovery of some
part of the cost. At the end of FY19, the
unrecovered and undisputed regulatory
claim stood at `940 crore. The company
is exposed to fluctuations in the prices of
LNG in international markets as it
imports the same from overseas. The
management is taking efforts to win long
term power purchase arrangements
(PPAs) to address the problem of
unutilised gas power capacity. However,
the government impetus to renewable
energy generation capacity along with
the falling tariffs of renewable power
could become an obstacle in resolving
the problem of the company’s
uncontracted generation capacity. The
dearth of short-term power contracts
and unfeasible prices in the short-term DS
Analysis Equity
power market resulted in a substantial
portion of the company’s capacity
remaining unutilised.Growth Drivers
The Gujarat Electricity Regulatory
Commission (GERC) extended its
approval for the 278 MW long-term PPA
between the UnoSugen gas plant and the
distribution circles in Ahmedabad and
Surat. However, the PPA is subject to the
purchase cost from UnoSugen (including
gas cost and fixed charges) being less than
the cost of medium-term power. The
company will have to sign medium-term
LNG contracts which will render it
vulnerable to the movement in crude oil
prices. However, the company will hedge
its exposure towards the same. TPL has
safeguarded the debt obligations and
overhead costs of the plant, thereby
ensuring sustainable profitability.
Furthermore, TPL has planned for capex
of `1,600 crore for its licence and
distribution franchise. Also, the capex for
wind projects over FY20/21 is estimated
at `3,800 crore. The company possesses
regulatory assets worth `9,400 crore, of
which `200 crore worth of assets have
already been approved and `7,400 crore
worth of assets are likely to get approval
in the near future. The installed renewable
energy (RE) capacity is expected to more
than double to 1.4 GW by FY21.Conclusion
The sourcing of imported LNG has
improved the PLF of the company’s gas
plant which is under PPA. The risk of
contract expiry in the distribution
franchisee (DF) business has been
eliminated. Moreover, the privatisation of
electricity distribution in India is
speeding up, thereby generating new and
lucrative growth opportunities. TPL
boasts of one of the strongest balance
sheets among the private power sector
players. Moreover, the consolidation in
the conventional generation sector bodes
well for the future prospects of the
company. TPL’s aggressive foray into RE
generation has enhanced the company’s
revenue visibility. By virtue of these
factors, we urge our reader-investors to
BUY this stock.Historical Share Price Performance
Company Name 1 month 3 months 6 months YTD 1 year 3 years 5 years
Torrent Power 26.99 17.82 17.89 19.82 42.03 83.67 107.51
Tata Power 5.27 -4.77 -10.89 -11.58 -1.16 -3.41 -35.19
Power Grid Corp. of India 7.70 6.17 8.77 4.55 5.29 35.14 53.11
PTC India -2.06 -12.05 -28.73 -30.80 -8.80 -19.23 -25.33
NTPC -0.87 -4.62 -10.30 -11.63 -15.83 -16.18 -10.61
SJVN 5.88 6.97 1.75 1.75 -0.76 -8.10 12.02
Source: BSE Data as on 16th July, 2019