Stable quarter, UNOSUGEN boosts profit
Torrent Power’s (TPW) reported consolidated revenue grew 5.9% YoY to Rs37.4bn, while EBITDA grew 8.8% YoY to Rs8.4bn and profit grew 22% YoY to Rs2.75bn in Q1FY20 (I-Sec est Rs2.63bn). Main drivers of the profit growth were
1) merchant sales from UNOSUGEN and DGEN (Rs420m),
2) reduction in T&D losses (Rs600m),
3) higher renewable PLF (Rs170m), and
4) lower deferred tax liability.
This was partly offset by lower O&M allowance in the CERC 2019-24 MYT (Rs400m). Accounting for delay in commissioning of SECI-3 and Thane distribution, we have revised our earnings estimate for FY20E/FY21E by 1.1%/(2.4)%, respectively (Thane dist is loss making in initial years). We have not included SECI-5 in our estimates, which is also facing delays due to land issues. We maintain ADD with a revised SoTP-based target price of Rs320.
* UNOSUGEN & DGEN improve profitability: Sale of merchant power during the quarter from the two plants was one of the key reasons for the improvement in profitability YoY by 22%. With long-term PPA of UNOSUGEN becoming effective from July’19, we expect subsequent quarters to report better profits as UNOSUGEN will receive fixed cost of Rs2.28bn annually (profit impact of which is Rs1.3bn annually). The reference price of the PPA has been fixed at Rs5.6/kWh at least for the next three years benchmarking it with the PFC-PTC bid for 2500MW, while the fixed cost being Rs1.01/kWh, gives room for variable cost of Rs4.5/kWh implying US$7.5/mmbtu imported LNG (vs current price of US$4/mmbtu).
* Distribution business steady: TPW’s regulated distribution business performed well with T&D loss reducing to 11.62% in Ahmedabad (vs 12.16% YoY) and 3.26% in Surat (vs 3.04% in Q1FY19). AT&C losses at Bhiwandi reduced to 14.16% (vs 16.27% in Q1FY19) and at Agra increased to 24.55% (vs 23.27% YoY, due to delay in payment from the government department).
* Upcoming renewable projects facing delays: TPW has 851MW wind capacities under development. Of this, SECI-1 has been downsized from 150MW to 100MW (50MW is commissioned) due to OEM-related issue (INOX Wind), while land-related issues at SECI-3 and SECI-5 have resulted in further delays. Now we expect the plants to get commissioned by FY22E (vs FY21E earlier). Although for SECI-3, SECI has allowed an extension on land acquisition timelines, it is yet to approve extension of CoD dates. The company is closely monitoring the developments and will not spend further (Rs4bn spent till date against which it has bank guarantee of entire amount from Suzlon, the EPC contractor) till progress is made on land acquisition. However, in case of cancellation of the project, TPW has to incur a maximum penalty of Rs1.5bn (Rs1bn towards SECI and Rs500m to PGCIL). In case of SECI5, no material capex is incurred.
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