Power Q2FY19 Review: Coal shortage impacts generator’s margins, spikes prices in short-term market

Higher power demand resulted in a sharp reduction in coal inventories as well as higher rates in the short-term market.

Nov 23, 2018 11:11 IST India Infoline News Service

Poor offtake for Coal India (up 4% yoy) in Q2FY19 resulted in low coal inventory levels across the country. Private power generators were particularly impacted by the lower availability of coal. As a result of this, generation volumes remained constrained resulting in lower margins for thermal generators. However, certain generators, which are reliant on imported coal (JSW Energy), were able to keep up generation volumes and take advantage of higher merchant prices.
 
Margins for hydropower generators (NHPC) saw sharp an improvement due to higher merchant power prices. Renewable power generators were also able to take advantage of higher merchant rates in addition to enforcement of RPO on power purchasers.
 
At present, while power demand remains high, coal stock levels are yet to recover. Thus, we see that volumes in the short-term power market are likely to witness strong traction in the near term (IEX).
 
Our top picks are Power Grid Corporation, CESC, IEX, NTPC, and NHPC.
 
CESC
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales     2,220.0 2,088.00 6.3 2165 2.5
EBITDA         511.0 505 1.2 495 3.2
EBITDA margin (%)           23.0           24.2 -117bps           22.9 15bps
PAT 271 247 9.7 184 47.3
 
CESC reported a 6.3% yoy increase in revenues in Q2FY19, while its EBITDA rose 1.2% yoy, with EBITDA margins falling 117bps yoy due to higher fuel costs. The company has completed the demerger of its non-power businesses.
 
JSW Energy
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales     2,430.8 2,049.04 18.6 2360.6 3.0
EBITDA         861.3 882.38 -2.4 548 57.2
EBITDA margin (%)           35.4           43.1 -763bps           23.2 1222bps
PAT         302.0 296.83 1.7 229.5 31.6
 
Revenue for JSW Energy rose 18.6% yoy supported by (1) 9% yoy rise in generation volumes, and (2) higher realizations in the merchant power segment. EBITDA margins contracted 763bps yoy due to a sharp increase in international coal prices and weakness in the rupee. PAT increased marginally by 1.7% yoy, as a reduction in debt was offset by a rise in interest cost due to the depreciation of the rupee.
 
NTPC
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales   22,261.0 19,698.75 13.0      22,703 -1.9
EBITDA     5,592.3 5,441.03 2.8         5,954 -6.1
EBITDA margin (%)           25.1           27.6 -250bps           26.2 -111bps
PAT 2425.92 2,439.36 -0.6         2,588 -6.2
 
Revenue growth remained flat qoq as power generation for Q2FY19 remained flat at 65bn units. Plant availability for NTPC continued to remain poor, falling 159bps qoq and resulting in a fall of 111bps qoq in EBITDA margins. The management has stated that they are on track to add 4.9 GW of capacity for FY19. So far, 800 MW of capacity has been added in H1FY19.
 
NHPC
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales     2,495.0 1,971.69 26.5 2128.9 17.2
EBITDA     1,596.7 1,114.95 43.2     1,290.5 23.7
EBITDA margin (%)           64.0           56.5 745bps           60.6 338bps
PAT 1218.5 1018.6 19.6         737.6 65.2
 
Revenues rose 26.5% yoy in Q2FY19 due to  (1) 14% yoy rise in generation volumes, and (2) higher realizations from the merchant power segment. These higher realizations supported a 745bps yoy expansion in EBITDA margins. Net profit margins, meanwhile, were impacted due to a sharp increase in depreciation.
 
PowerGrid
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales     8,283.0 7,252.84 14.2 8127 1.9
EBITDA     6,972.5 6,474.88 7.7         6,927 0.7
EBITDA margin (%)           84.2           89.3 -510bps           85.2 -105bps
PAT 2309.5 2,059.95 12.1         2,241 3.1
 
PowerGrid saw its revenue grow 14.2% yoy supported by capitalization of ~Rs4,740cr. EBITDA and PAT margins were impacted due to higher wage provisions. Capex for the full year is expected at ~Rs27,000cr.
 
Tata Power
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales     7,332.6 6,873.65 6.7 7313.4 0.3
EBITDA     1,725.9 1,807.06 -4.5 1770.8 -2.5
EBITDA margin (%)           23.5           26.3 -275bps           24.2 -68bps
Adjusted PAT 426.28         342.8 24.3         311.7 36.8
 
Revenues for Tata power were 6.7% higher yoy due to (1) capacity addition in the renewables segment, and (2) higher revenues from the coal segment. Due to issues with availability of domestic coal and the rise in international coal prices, EBITDA margins contracted 275bps yoy to 23.5% in Q2FY19. Adjusted PAT stood 24.3% higher yoy due to deleveraging efforts by the company.
 
Indian Energy Exchange
 
Q2FY19 Q2FY18 YoY Q1FY19 QoQ
Sales           66.9 55.82 19.8           67.0 -0.2
EBITDA           54.6 46.55 17.3           54.5 0.2
EBITDA margin (%)           81.6           83.4 -176bps           81.3 32bps
PAT           42.7 32.66 30.6           41.9 1.9
 
IEX's revenue growth of 19.8% yoy for Q2FY19 was supported by (1) 17% yoy rise in trading volumes for DAM and TAM segments. and (2) 313% yoy rise in REC volumes. EBITDA margins contracted 176bps yoy due to higher employee costs, while PAT expanded 30.6% yoy aided by the lower tax rate for FY19.

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