The Hindu Business Line : Power stocks fail to take cues from the Survey

Kolkata, Feb. 28 Market on Thursday did not take a cue from the Economic Survey’s observation that the country’s electricity generation was less than the target of 710 billion KW hours during 2007-08.

“In absolute terms, total energy deficit during the period was pegged at 45,601 million units,” it said.

Overcoming bottlenecks

Is it a challenge or an opportunity for the listed power stocks in the months ahead? “Obviously, this is an opportunity for the power companies and not unknown to the market. But it did not react to the generalities and was waiting for specific cues from the Budget tomorrow,” said Mr Sudip Bandopadhyay, CEO of Reliance Money.

“But the fact that the Survey has taken note of it is heartening. The PPP model has been working well for some time now. Reliance Power, which has obtained largest mandate even as a newcomer, is an example of things that may follow. The interesting trend is that the private players are seriously looking at overcoming bottlenecks in coal linkages or access to oil and gas resources through overseas acquisitions,” he added.

“The GDP growth is fundamentally linked to power generation growth. The Survey’s hint could be towards faster implementation of the projects — be it hydro, thermal or nuclear,” felt Mr Ashith N. Kampani, Managing Director of JM Financial.

Margin prospects

According to Mr Ajay Jaiswal of Angel Broking, the power stocks are high beta stocks (relatively inelastic returns). “Power producers now have to cope with a new element — cost escalation — because of increase in prices of key inputs, such as crude oil, steel and cement.

The cost assumption of Rs 4 crore for 1 MW power has gone awry in the last couple of years and margin prospects have shrunk. This is a restrictive factor for valuation of power stocks, he commented.

An industry insider said that the power producers have been facing delays in project implementation for various reasons outside their control. These are also cost accretive, he added.

Power stocks finished mostly flat ahead of the Budget. Tata Power closed 0.65 per cent up at Rs 1,385. CESC finished down a little over 1 per cent at Rs 540. While NTPC finished 0.79 per cent up at Rs 203, Jaiprakash Hydropower closed at Rs 74.60, down around 2 per cent.

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