MOSL: TORRENT POWER (Buy)-Low LNG prices keep UnoSugen up and running
Torrent Power: Low LNG prices keep UnoSugen up and running
(TPW IN, Mkt Cap USD1.8b, CMP INR270, TP INR346, 28% Upside, Buy)
We met Torrent Power (TPW) to get an update on the business outlook. Key takeaways:
Plan to increase gas sourcing mix toward spot
- TPW has not tied-up new gas supplies for its UnoSugen PPA (effective from 1st Jul’19). Instead, the company is (a) making use of gas tied up for Sugen (@USD6.5/mmbtu till Dec’20) and (b) buying from spot, as required.
- While the Unosugen PPA has a ceiling on the cost of supply (INR5.6/kWh), current spot contract prices provide significant cushion (Exhibit 2).
- TPW believes that the natural gas market would remain oversupplied, and thus it would increase sourcing from spot contracts. Longer-term contracts (generally up to 1.5 years) could be entered, but pricing is done with reference to Brent (slope of ~10-11%) and resulting in higher cost. According to our oil & gas sector analyst, the glut in global gas supply is likely to continue, given (a) increasing gas supply from the US and Qatar and (2) plateauing consumption in China along with possible lower imports from Japan.
Torrent Power Limited is a holding company. The Company is an integrated utility engaged in the business of power generation, transmission and distribution with operations in the states of Gujarat, Maharashtra and Uttar Pradesh. It is also engaged in the business of cables manufacturing with operations in the state of Gujarat. It has an aggregate generating capacity of approximately 3,334 megawatts (MW). The Company's generation facilities include an approximately 1,147.5 MW SUGEN Mega Power Plant near Surat; an over 382.5 MW UNOSUGEN Power Plant near Surat; an approximately 1,200 MW DGEN Power Plant at Dahej SEZ near Bharuch; an approximately 422 MW AMGEN Power Plant at Ahmedabad; an approximately 49.6 MW Wind Power Plant at Lalpur, Jamnagar; an approximately 51 MW Solar Power Plant at Charanka, Patan, and an approximately 81 MW GENSU Solar Power Plant near Surat. The Company distributes approximately 10 billion units of power to over 2.2 million customers.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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