SMART PROFIT LATEST REPORT ON POWER SECTOR
OVERVIEW
After August 2011, the market is back to 18k level with strong upswing
movement. Factoring the firm global cues with high inflow of
investors in market, Sensex is expected to continue this upward rally.
As per research, power sector is a lucrative stream to invest with a
long term view.
With Government of India working to boost power sector, Coal India
will sign by March end agreements for supply of fuel to power projects
commissioned up to December 2011.
The Government has forced SEB's to increase power tariff by 25-30%.
This step of Government has provided huge relief to companies in power
generation companies. According to sources, there may be another price
hike of 20-25% within a period of 2 years.
For the 12th plan, Power companies capital expenditure is expected to
be around Rs.100, 000-120,000 crore in which about 52,000 km of
transmission lines, 70 sub-stations and transmission capacity of
1,36,000 MVA.
The Government of India being keen on infrastructural development for
economic development, power is the leading sector to be further
developed.
Going by the recent development, we expect Powergrid, NHPC, REC,
Neyveli Lignite to report healthy set of results on the back of higher
capitalization and higher capacity addition. We expect an average post
of 20-25% increase in revenue and profit Y-o-Y.
BUY NEYVELI LIGNITE CORPORATION LIMITED (513683)
CMP: 92
Target: 150 in 9 months
NLC is a government-owned power generating company having its own
lignite mining company, which is wholly owned by the Union and State
Government (93.56%) and with remaining out of 6.44 %, 4.66% is with
Insurance companies. It is recently announced as "Navratna" by
Government of India in April 2011. NLC Neyveli spreads over an area of
around 54 square km, comprising Neyveli Township and temporary
colonies around 32 blocks. The company runs the biggest open-pit
lignite mines in India and mines around 2.4 Crore tonnes of lignite
annually for fuel, with an installed capacity of 2490 MW of
electricity per annum.
NLC now elaborated its project to Rajasthan also in mining as well as
thermal stations, 3 big mines also supplies a huge amount of sweet
water to Chennai. The Tamil Nadu electricity board has a JV with the
Neyveli Lignite Corporation Ltd (NLC) for two projects – A 1000-MW
coal-based project at Tuticorin in southy Tamil Nadu at the cost of Rs.
4000 crore and the Jayamkondam lignite power project at a cost of Rs.
5000 crore for 1000 – MW power plant. The company has also planned to
develop clean coal technologies like extraction of coal bed methane
(CBM) and Underground coal gasification for which several steps have
been taken. The coal priced has risen, due to which Central Govt. has
forced SEB to increase Electricity Power tariff by 25-30%. which will
directly benefit NLC for ownership of their mines.
It reported a net profit of Rs 184.94 crore in the October-December
quarter of FY12, a growth of 92.5% as compared to Rs 96.07 crore in a
year ago quarter.
Net sales rose 20.3% to Rs 1,045.99 crore from Rs 869.21 crore year-on-
year.
Neyveli Lignite is an open-cast mechanized lignite mine. The Company
has 50 % joint venture with Tamil Nadu Electricity Board and its
announced its plans to invest about Rs.36,900 crore on power
generation and mining capacity augmentation by 2017. The plan also
includes development of power projects using other fuel feed. The
company is also planning to invest Rs.40,200 crore to build power
plants in Tamil Nadu, Rajasthan and Uttar Pradesh.
Strong expansion & diversification plans to explore coal-based, wind
and solar power generation projects will add on strength to the
cashbook.
We recommend 'BUY' on the stock at CMP Rs. 92 with a target price of
Rs. 150 in 6 months
BUY POWER GRID CORPORATION OF INDIA (532898)
CMP: 113
Target: 150 in 9 months
Power Grid Corporation of India, the Central Transmission Utility
(CTU) of the country under the Ministry of Power.
Central Transmission Utility - Navaratna PSU - Asset of Rs. 50352 Crs
as on March 31, 2011. World's Leading Power Transmission Utility -
82,354 Ckt.Km line-135 Substations . Technology Leader in EHVAC & HVDC
Transmission.
Carries 51% of Generated Power Across Country.
• 93,050 MVA Transformation Capacity
• 22400 MW (Approx) Interregional Capacity
Telecom NLD with 20733 Km Optical Fiber Network & Internet Service
Provider
Net profit after tax rose to Rs 809 crore in the October-December
quarter of FY12, a growth of 37% as compared to Rs 591 crore in a year
ago quarter.
Net sales rose 20 % to Rs 2,576 crore from Rs 2,145 crore year-on-
year.
Capital expenditure for FY12 is expected to be around Rs 16700 crore.
For the 12th plan, company's capital expenditure is expected to be
around Rs 100,000-120,000 crore in which about 52,000 km of
transmission lines, 70 sub-stations and transmission capacity of
1,36,000 MVA are to be added. The management has guided for
capitalization of Rs 10,000 crore in FY12. Higher capitalization
should aid top line growth. Company has more than 50% of the market
share of the transmission sector and this is expected to increase.
Due to Power Grid's robust long-term business outlook, valuations and
on a strong fundamental basis, we have a 'BUY' rating on the stock at
CMP of Rs 113 with target price of Rs.150 in 9 months.
BUY RURAL ELECTRIFICATION CORPORATION LIMITED (REC) (532955)
CMP: 182
Target: 300
REC, under Ministry of Power, was incorporated on July 25, 1969 under
the Companies Act 1956. REC a listed Public Sector Enterprise
Government of India with a net worth of Rs. 12,784 Crore as on
31.03.11.
REC provides loan assistance to SEBs/State Power Utilities for
investments in rural electrification schemes through its Corporate
Office located at New Delhi and 17 field units (Project Offices),
which are located in most of the States.
The company has been rated among the top 500 Global Financial Services
brands for 2010 by UK-based plc Brand Finance. REC is also among the
Forbes Global 2000 companies for 2010.
Net profit after tax rose to Rs 769.51 crore in the October-December
quarter of FY12, as compared to Rs 664.09 crore in a year ago quarter.
Net sales rose to Rs 2,663.68 crore from Rs 2,142.33 crore year-on-
year.
With a strong sanctions pipeline (INR1.6 trillion), loan growth is
likely to be healthy at 22% CAGR over FY11-13. Loan book grew 24% Y-o-
Y and 5% Q-o-Q to INR858 billion.
We have a 'BUY' rating on the stock at CMP of Rs.182 due to REC's
robust long-term business outlook and valuations considering
compounded earnings growth of 25% and average return on equity (RoE)
of 22% over 2011-12.
BUY NATIONAL HYDRO POWER CORPORATION (533098)
CMP:21
Target: 40 in 6 months
National Hydro Power Corporation, an entity of Government of India, is
country's largest hydro power producer.
NHPC is currently having an installed capacity of more than 5,300 MW
with 14 operational power stations and has a cash surplus of over Rs.
4,000 crore.
National Hydroelectric Power Corporation (NHPC) has reported a net
profit of Rs 966 crore in the second quarter of FY12, a growth of 40%
as compared to Rs 690 crore in the corresponding quarter of last
fiscal.
The state-run major is engaged in the construction of 10 projects at
various locations in the country, going to have an additional capacity
of 4,502 MW. It is planning to develop two hydro projects in Myanmar.
It plans to increase the capacity to over 10,000 MW by end of 2012.
The coal price has risen, which will force to increase in power price
by 25-30%. This will further boost the profit margin of NHPC to a
large extent.
Spanning on Government's increasing emphasis on hydro power and NHPC's
strong hold, we recommend a BUY on NHPC at CMP of Rs 21, with a target
of Rs.40 in 6 months.
DISCLAIMER: - Smart Profit has taken due care and caution in
compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
from the use of such information.
FOR FURTHER DETAILS CONTACT:-
SUMAN JAIN
(CEO)
+919820041126
Email: sumanjain@smartprofit.in
ANKITA JAIN
(Director)
+919819854402
Email: ankita@smartprofit.in
DIPAK MANGELA
(Research Analyst)
+919820260291
Email: dipak.mangela@smartprofit.in
SHAILESH GOWDA
(Sr. Executive)
+919967394114
Email: shailesh.gowda@smartprofit.in
MANSINGH RAI
(Sr. Executive)
+919320907684
Email: mansingh.rai@smartprofit.in
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