MOSL: TORRENT POWER (Buy)-UnoSugen gets green signal, but with caveats
TORRENT POWER: UnoSugen gets green signal, but with caveats; Upgrade FY20/21 PAT by ~8/11%; Maintain Buy
(TPW IN, Mkt Cap USD1.9b, CMP INR272, TP INR317, 17% Upside, Buy)
GERC approves 278MW PPA for UnoSugen…
The Gujarat Electricity Regulatory Commission (GERC) has approved the 278MW long-term PPA between Torrent Power’s (TPW) UnoSugen gas plant (total capacity: 383MW) and its Ahmedabad and Surat distribution circles. The PPA is for the remaining life of the plant of 19 years. The annual fixed charge (AFC) is approved at the lower of CERC determined tariff or INR2.28b. The AFC approved by CERC is INR3.46b in FY19, but TPW has offered a discount as part of negotiation in the interest of consumers. The approved AFC equals to INR1.1/kWh (@ 85% PLF). Variable cost will be a pass-through.
…but with certain conditions
According to the tariff order, the PPA is subject to the purchase cost from UnoSugen (gas cost + fixed charges) not being more than the cost of medium-term power. The implied landed cost of power (incl. transmission) based on the recent medium-term contract will be ~INR5/kWh. This becomes the ceiling price for TPW. The company will have to enter into medium-term LNG contracts which are subject to the movement in crude oil prices (i.e. slope to crude). We believe TPW will try to neutralize this risk by hedging, like it has done for its existing gas supply contract (of ~1mtpa @ USD6.5/mmbtu). At spot LNG, we estimate UnoSugen’s all-in (gas cost + fixed charges) cost at ~INR4/kWh. We believe TPW will be able to secure LNG contracts to make the PPA workable.
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.
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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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