Torrent Power

Stock Opportunities
21

Hi Ayush,

Please do read the section on Power Sector in this note. My understanding is that gas based plants are still vulnerable. Gas generated power remains costlier in the merit order position compared to other sources given the downward revision in domestic gas prices by 24% in the last one year, and improving domestic coal availability. ICRA concludes that “the viability of stranded gas based projects (15 GW) remains critically dependent on an improvement in domestic gas availability”

http://www.icra.in/Files/ticker/ICRA%20Impact%20Analysis%20on%20RasGas.pdf

Regards
Aditya

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22

@hitesh2710

How did you deduce FY 17 earnings?

23

nikhil,

I did not deduce anything. the note is copy pasted and whatever info there is is present in the info provided in the link.

For me torrent power is a bet on easy availability of gas to run its power plants which were earlier stranded and since co is also into distribution business, it had to purchase gas from markets and hence was suffering. Now even with relatively lower PLF torrent power can improve its profitability bcos once the fixed costs are covered incremental profitability can be better.

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24

Totally agree with your thesis. I just thought that since you have copy pasted the note, you agree with all the points.

Anyhow, I find it hard to believe that FY17 won’t show any improvement on FY16 numbers and find his estimates to be too conservative.

Disclosure :- I hold Torrent Power in my PF. My views may be biased. Do your own due diligence before buying/selling this business.

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26

Excellent results by Torrent Power. The company has a market cap of about Rs 11,000 crore while 9mFY16 profits stand at Rs 800 crore odd. Trading at an attractive PE I believe.

The Company has posted a net profit of Rs. 3570.90 million for the quarter ended December 31, 2015 where as the same was at Rs. 2353.40 million for the quarter ended December 31, 2014. Total Income is Rs. 30613.20 million for the quarter ended December 31, 2015 where as the same was at Rs. 25726.40 million for the quarter ended December 31, 2014.

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=e636ae35-1eea-4d4b-97b2-e42efac5ffc5

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27

Torrent Power Dec -15.jpg1210×1517 522 KB

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28

anybody wanting to get more details on business of torrent power, co has provided a good detailed presentation for q3 fy 16 on its website. Its quite informative.

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29

& the presentation - http://www.torrentpower.com/investors/2015/investor_presentation-q3_1516.pdf

Disc: Invested

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30

Its interesting to see the interest cost coming down and loan repayments happening. With gas prices coming down and making their plants viable, it will be interesting to see how quickly they can improve the PLFs going forward.

Regards,
Ayush

Disc: Invested

7 Likes
31

A general article on PLFs

http://www.business-standard.com/article/economy-policy/power-plant-plfs-to-remain-22-year-low-amid-muted-energy-demand-116020400597_1.html

Plant load factors (PLFs) of power companies are unlikely improve in FY17 from the 61.7 per cent average over the first nine months of FY16, the ongoing year, says India Ratings & Research (Ind-Ra).

This is despite an improving fuel supply it says, as demand growth for electricity is expected to stay muted.

BTW…What a great post by dhwanil in 2012. He highlighted the gas availability issue already then

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32

Interim dividend of Rs.4.5 per share announced today.
http://www.bseindia.com/corporates/ann.aspx?curpg=1&annflag=1&dt=&dur=A&dtto=&cat=&scrip=532779&anntype=A

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33

What are the chances that gas e-auction prices would be lowered given tepid response?

34

Any articles which indicate that the gas price may get reduced in the upcoming auction? If done, it should be a major positive for Torrent.

35

Just an update on winners in today’s concluded e-auction:

Results of e-auction

Torrent did not participate because of high price

36

Below is article for Business Line:

A gamble that Minister of State (Independent Charge) for Power Piyush Goyal took a year back –– of firing up stranded gas-based power plants with imported blue fuel –– has paid off. The latest round of subsidy-based auctions conducted by the Power Ministry to import and allocate gas for such plants saw nil claimants for the subsidy.

The Ministry has ended up saving ₹1,600 crore earmarked for subsidy support in the third phase of R-LNG e-auctions on Tuesday, since none of the nine participants bid for subsidy support from the Power System Development Fund (PSDF).

This prompted the Ministry to allow negative bids, under which the plants pay back to the government on every unit of electricity generated. The negative bids will take place on March 20.

This bidding mechanism envisaged providing the stranded plants with imported fuel while subsidy was provided to electricity distribution utilities to keep costs low.

The plants seeking the lowest subsidy were allocated the gas, which essentially places a premium on efficiency. On the latest development, PK Pujari, Secretary, Ministry for Power, told BusinessLine that “On Sunday, we will test how much support the plants want to forego.”

“While the guidelines allowed for negative bids, the MSTC e-platform did not have a provision for it hence the auctions being deferred,” he added.

Meanwhile, the R-LNG e-auctions for plants receiving some domestic natural gas, which were to be held on Wednesday, were scrapped after fewer than three bids were received. “Our understanding is that the plants are happy with the price and quantity of gas available and did not need PSDF support,” Pujari said.

Power Ministry officials indicated that the price of gas being offered to the plants under the scheme was $7.2-7.5/million British thermal unit (mBtu). The long-term contracted gas from RasGas, Qatar, stood at $6.25/mBtu today.

From April 1, domestic gas price is also likely to fall further by almost 15 per cent from the current $3.82/mBtu at gross calorific value (around $4.2 a unit net).

This is an indicator that the cost of electricity generated from the fuel has also come down; every dollar increase/decrease in gas price impacts electricity tariff by 45-50 paise a unit.

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37

If I understand correctly, government has scrapped the earlier auction and is re-doing it so bidders can bid negative subsidy (i.e. bidders will pay government money for getting the RLNG). In the auction conducted 3 days earlier, within seconds, all RLNG available for auction got lapped up with zero subsidy asked for it. It prompted government to think in other direction…i.e. getting paid for giving RLNG.

From the provisional winners announced for the above auction, it is clear that Torrent power did not put in zero bid. i.e. Company is expecting to get some subsidy support from government to ensure they supply power at ceiling rate (5.5/Kwh) and cover reasonable cost. On the other hand, power plants in south GVK, Lanco etc put in bid for zero subsidy. Going forward when the auction is re-conducted, if torrent sticks to it’s ground it may not bid for it and will not get any gas from April to October 2016.

Thus, it may not be able to operate UNOSUGEN and DGEN and will also run SUGEN at lower PLF. Apparently, this can may look like negative for Torrent. However, if we dig deeper, as management, the question boils down to following before deciding what subsidy to bid for

  • Will TPL be able to procure power from exchnages/market at rate lower than the variable cost of power generation from the RLNG (at USD 7.2-USD 7.5/MMBTU) auctioned without any subsidy support? Apparently, not bidding for zero subsidy means, TPL management is of the view that without subsidy support, it is cheaper to procure power from open market than to do its own generation.

The question that comes to our mind is, if this is so, wouldn’t same logic prevail for other producers as well? In my opinion, it probably will not. It is important to recognize that, unlike GVK,GMR or LANCO, TPL is an integrated generation and distribution company and it supplies all the power generated to its own distribution arm. Thus, for them, it makes lot of sense to go for optimum cost of power across the whole chain (generation, transmission, distribution) considering both generation and distribution. While for others, it is all about, covering some fixed costs to the extent possible as they will eventually end up supplying power to state distribution companies. Thus, at the moment, from TPL’s actions it seems that management view is that it will be much cheaper to procure power from market than to produce its own (in fact, last month on the largest power exchange of the country, IEX, the average power price dropped to all time low of Rs 2.3/Kwh)

It will be interesting to see, how revised auction plays out and how next couple of quarters play out for TPL

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38

Dhwanil,

If they procure power from IEX, say at 2.3Rs per kwh or something higher, what additioinal costs do they need to incur before supplying to their customers in their distribution network? Are there additional costs besides these rates on IEX?

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Hiteshbhai,

It is difficult to estimate the additional cost afterpower purchase from exchange as it involves number of variables/factors such as transmission cost from interconnection point, congestion charges, wheeling/cross subsidy charges if any etc which are dynamic in nature and some of them (i.e congestion charge) are function of prevailing power/transmission demand supply capacity at the time of transaction. However, it is reasonable to assume that Buyer of power from exchanges will pay some cost over and above IEX prices and the additional cost will NOT be negligible. If I have to hazard a guess, it may vary from 70-80 paise/Kwh to 1.5-1.6 rupee/Kwh. However, this number is very very rough and can deviate significantly (mostly on upside) based on above factors.

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40

No discussion on the stock from a long time .
Due to results below estimates and that due to merger of its subsidiary resulted in deep correction of stock price … 16% down…
Good time to enter I think …what others think ??

Disclosure - Tracking from long time and entered today …

41

http://pib.nic.in/newsite/PrintRelease.aspx?relid=145526

First e-Bidding process through recently launched DEEP (Discovery of Efficient Electricity Price) e-Bidding Portal for Short term power procurement has been concluded for the State of Uttarakhand and Kerala on 29.04.2016, for Torrent Power Ltd. on 03.05.2016 and for State of Bihar on 09.05.2016.

Secretary (Power) Shri P K Pujari, while congratulating States of Uttarakhand, Kerala Bihar and Torrent Power for early adoption of the e-bidding portal, stated that the process has resulted in substantial savings as the prices discovered through e-bidding are significantly lower than the prices at which power was procured during the similar period in the last year.

In e-Bidding process of Torrent Power Ltd., the lowest price for the month of May-June in slot of the day has been discovered at the rate of 2.95 per unit. There was no short term procurement in 2014-15 and 2015-16 by Torrent Power Ltd.

These lower prices discovered through reverse auction in e-Bidding Process are expected to result in overall reduction of cost of procurement of power in the States and greater transparency in the auction process benefiting the ultimate consumers.

Shri Piyush Goyal, Minister of State (IC) for Power, Coal , New and Renewable Energy had inaugurated the launch of “DEEP (Discovery of Efficient Electricity Price) e-Bidding& e-Reverse Auction portal” for procurement of short term power by DISCOMs on April 2016 with the objective to introduce uniformity and transparency in power procurement by the DISCOMs and at the same time promote competition in electricity sector.

The Guidelines for short term procurement of power was also notified on 30.03.2016 by Ministry of Power, Government of India, making it mandatory for all the Procurer(s) to procure short term power by using this e-Bidding portal. The scope of this portal shall be further expanded soon to cover medium term and long term procurement of power.

http://www.mydigitalfc.com/power/deep-e-bidding-powers-savings-states-discom-956

Short-term power purchase on the DEEP platform would include contracts ranging from seven days (one to seven days reserved for power exchanges) to a year.

The DEEP platform has replaced the conventional tendering process that was used by discoms to meet most of their short-term power requirements. The platform also brings in details of every power procurement contract into the public domain in real time.

About 10 per cent of the total power purchases by discoms are short term, out of which 3 per cent is contracted through power exchanges. Power ministry officials said that the portal would not eat into the business of exchanges that were meant for very short duration supply arrangements ranging from one to seven days.

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