Monthly Update

November 23, 2013

Sector View Neutral Index Performance as on Nov 22, 2013
WTD Sensex Index Nifty Index BSEPOWR Index -0.9 -1.0 -0.8 MTD -4.5 -4.8 -2.2 QTD 4.4 4.7 3.1 YTD 5.7 3.1 -19.1

Power Plus
Generation impacted by lower demand
Generation growth was muted in October 2013 due to lower demand, resulting in flat ~1% YoY growth across coal based plants. This was, however, partially offset by higher growth across hydro and nuclear based generation. Accordingly, PLFs improved across hydro and nuclear but was down across thermal plants. Coal stocks deteriorated for the second consecutive month while lower power demand dented merchant rates. The sector, however, continues to face constraints in terms of 1) gas availability and pricing, 2) environment clearances, 3) SEBs financials and 4) rising debtors for utilities. The top pick in our coverage universe is CESC and NTPC (inexpensive valuation, risk averse regulatory business model and strong capacity addition during FY14-15). Generation: Generation was flat (up 1.5% YoY) in October 2013 driven by lower power demand. Accordingly, generation across the coal segment was flat at 0.7% YoY while the gas segment declined 46.8% YoY. However, hydro-based generation increased 34.5% YoY as beneficiaries opted for cheap hydro power vs. coal based power. Nuclear based generation increased 13.5% on a lower YoY base Company performance: NTPCs generation declined 8.5% YoY primarily due to back down by SEBs, resulting in 3.4% decline across coal-based plants while gas-based generation declined 55.7% YoY. The strong YoY growth in generation of Tata Power (+25.7%), Adani Power (+60.8%) and Jindal reflects capacity addition while gasbased plants of GMR and GVK continued to suffer. While generation increased YoY across hydro based plants of SJVN (+22.4%) and NHPC (+7.7%), it declined for JP Power due to close down of 400 MW Vishnu Prayag plant. PLF: PLF declined ~700 bps across coal-based plants to 61.1% while it was down to 21.8% for gas based plants vs. 44.2% YoY. However, PLFs improved across the hydro segment to 42.7% (vs. 32.2% YoY) and nuclear segment to 89.7% (vs. 79.0% YoY). Accordingly, industry PLF witnessed 377 bps YoY fall to 47.6% in October 2013 Deficit: While energy deficit remained flat MoM at 3.5%, peak deficits declined to 3.0% vs. 3.6% in September 2013. Hence, merchant rates declined 27.5% MoM to | 2.7/unit. However, on a YoY basis, both base and peak deficit improved significantly from 9.1% and 8.8%, respectively, in October 2012. Merchant rate was down 10.8% YoY Fuel supply, prices: Coal inventory deteriorated significantly with 28 out of 98 coal-based plants facing sub-critical inventory levels vs. 18 plants MoM, as cyclone Phailin in the eastern coast impacted coal production and thus supply. The inventory position, however, was better YoY with 49 plants in October 2012 facing sub-critical inventory levels. International coal prices though were down 5.1% YoY to US$82.1/tonne, on a landed cost basis it was up 9.3% YoY due to rupee depreciation. Natural gas production continued its declining trend, with output for September 2013 down 14% YoY to 96 mmscmd Capacity: In October 2013, capacity addition was 530 MW against the targeted 250 MW. YTD FY14 capacity addition was 5,908 MW vs. target of 8,186 MW. In the Eleventh Plan (2007-12), the industry achieved 86% of targeted capacity, adding approximately 67.5 GW (including approximately 17 GW renewable) vs. target of 78 GW. The government has set a target of 88.5 GW for the Twelfth Plan. Currently, all-India installed capacity stands at 229.3 GW

Stocks Performance
WTD NTPC Reliance Power Tata Power Co. NHPC Ltd Reliance Infra. Neyveli Lignite Adani Power JP Power Ven. JSW Energy Torrent Power SJVN Lanco Infratech CESC KSK Energy Ven. -1.3 -1.6 -2.2 -1.7 -3.0 -1.3 1.9 -0.9 4.5 -3.8 3.7 0.0 -4.4 -1.6 MTD 1.2 -4.5 -6.4 -2.2 -7.1 3.3 8.1 -5.9 2.1 20.2 9.9 -2.5 1.8 -1.0 QTD 2.3 3.6 -5.2 -9.5 8.3 6.2 9.6 14.1 8.3 43.4 11.3 11.2 11.9 17.7 YTD 0.3 -25.2 -29.4 -27.8 -21.3 -23.8 -42.7 -53.5 -26.9 -46.9 4.2 -56.1 21.7 -1.7 MCap 124,383 19,594 18,249 21,772 10,551 9,907 10,152 5,127 7,798 4,781 8,749 1,433 4,738 2,217

Mcap: Market cap in | crore

Price movement
140 125 110 95 80 65 50 Sep-12 Nov-11 Mar-12 May-12 Nov-12 May-13 Mar-13 Sep-13 Jan-12 Jul-12 Jan-13 Jul-13

SENSEX

BSE POWER

Analysts name
Chirag Shah shah.chirag@icicisecurities.com Anuj Upadhyay anuj.upadhyay@icicisecurities.com

ICICI Securities Ltd. | Retail Equity Research

All-India generation growth for October 2013 was flat (up 1.5% YoY) to 79.7 billion units (BUs) due to lower demand. YTDFY14 growth was at 4.8% YoY

Exhibit 1: Monthly generation overview

600 500 400 (BUs) 300 200 100 0 October 13 October 12 YTDFY14 YTDFY13 79.7 78.5 559.5 534.1

Source: CEA, ICICIdirect.com Research BUs: Billion Units

Growth across coal based generation was flat at 0.7% YoY, due to lower demand and availability of cheap hydro power. Accordingly, the hydro segment posted 34.5% YoY growth while nuclear based generation increased 13.5% on a lower YoY base. Gas based plants continue to underperform due to fuel supply constraints

Exhibit 2: Fuel wise YoY growth in generation (%)

50 40 30 20 10 (%) 0 (10) (20) (30) (40) (50) (60) Coal (46.8) Gas Hydro Nuclear Imports Total 0.7 13.5 1.5 34.5 38.7

Source: CEA, ICICIdirect.com Research

Exhibit 3: Company wise performance

Company NTPC Tata Power REL (ADAG) GMR GVK CESC Jindal Adani JSW NHPC SJVN Capacity (MW) 38,602 7,071 2,660 940 919 1,285 2,320 7,260 3,140 4,294 1,500 Generation Oct 13 (GWH) 17,887 3,463 1,306 23 77 765 1,260 3,901 1,498 1,391 506 YoY % growth (Oct'13) (8.5) 25.7 12.9 (79.8) (66.8) (3.2) 42.3 60.8 (16.7) 7.7 22.4 Generation YTDFY14 (GWH) 129,439 22,943 8,239 547 538 5,624 8,268 22,343 11,996 14,358 5,901 % Growth (YTDFY14) (1.3) 66.1 17.8 (52.0) (73.6) (0.4) 37.8 81.8 (0.3) (4.7) 4.2 % coal PLF (current % Gas PLF (current month) month) 72 66 67 82 74 74 65 29 101 3 12 % hydro PLF (current month) 44 46

Source: CEA, ICICIdirect.com Research

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NTPCs generation declined 8.5% YoY in October 2013 mainly due to 3.4% YoY & 55.7% YoY decline across coal & gas based generation, respectively, as beneficiaries opted for cheap hydro power Tata Power and Adani Power reported 32.1% YoY and 60.8% YoY growth, respectively, in generation mainly due to higher incremental capacity Gas based plants of GMR and GVK continued to suffer due to fuel supply constraints Hydro-based plants of SJVN and NHPC reported higher generation due to better reservoir level. However, generation declined for JP Power due to closedown of the 400 MW Vishnu Prayag plant, which was impacted by Uttarakhand floods

Plant load factor

PLFs declined across the coal and gas sectors while it improved for the hydro and nuclear sector. Consequently, the industry PLF declined to 47.6% in October 2013 vs. 51.4% YoY
100 90 80 70 60 50 40 30 20 10 0 90 79 61 68 44 22 43 32

Exhibit 4: PLF across sectors

(%)

Coal

Gas October 13

Nuclear October 12

Hydro

Source: CEA, ICICIdirect.com Research

Inventory data The coal supply position deteriorated significantly in October 2013, with 28 out of 98 coal based plants facing subcritical inventory levels vs. 18 in September 2013. This was primarily due to increased generation across coal based plants in September 2013, which led to destocking of stocks at the plant level. Also, the cyclone Phailin at the eastern coast impacted coal production at mines and thus supply. The situation, however, was far better compared to 49 plants facing subcritical levels in October 2012.
Exhibit 5: Number of power plants facing sub-critical level of inventory (less than seven days)
60 50 (No of Power Plants) 40 30 20 10 0 Feb-12 Apr-12 Sep-12 Feb-13 Apr-13 Dec-11 Nov-11 Mar-12 Dec-12 May-12 Aug-12 Nov-12 Mar-13 May-13 Aug-13 Sep-13 Jan-12 Oct-11 Jun-12 Jul-12 Jan-13 Oct-12 Jun-13 Jul-13 Oct-13 47 48 45 39 34 32 32 32 35 28 49 43 35 29 29 32 32 21 18 17 18 12 12 12 28

Source: CEA, ICICIdirect.com Research ,rect.com Research

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Exhibit 6: International coal price trend

200

International coal prices declined 5.1% YoY to $82.1/tonne. However, on a landed cost basis, prices increased 9.3% due to rupee depreciation
($/tonne)

180 160 140 120 100 80 60 40 20 0 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Jun-13 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Jul-13
Sep-13

Source: CEA, ICICIdirect.com Research

The declining trend in natural gas production continued, with output for September 2013 down 14% YoY to 96 mmscmd

Exhibit 7: Domestic natural gas production trend

180 160 140 (mmscmd) 120 100 80 60 40 20 0 Sep-09 Sep-10 Sep-11 Sep-12 Dec-09 Dec-10 Dec-11 Mar-10 Mar-11 Mar-12 Dec-12 Mar-13 Sep-13 Jun-10 Jun-11 Jun-12

Source: CEA, ICICIdirect.com Research

Power deficit
While the base deficit remained flat at 3.5%, peak deficit declined to 3.0% vs. 3.6% in September 2013. However energy and peak deficit is much lower compared to 9.1% and 8.8% YoY, respectively

Exhibit 8: Peak and base deficit October 2013

16 14 12 10 (%) 8 6 4 2 0 Sep-10 Sep-11 Sep-12 Jun-10 Jun-11 Jun-12 Dec-10 Dec-11 Mar-10 Mar-11 Mar-12 Dec-12 Mar-13 Jun-13

Base deficit

Peak deficit

Source: CEA, ICICIdirect.com Research

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Oct-13

Exhibit 9: Region wise deficit (%)

Oct-13 Region Northern region Western region Southern region Eastern Region North Eastern region All India Base Defict (6.2) (0.7) (4.5) (1.3) (5.0) (3.5) Peak Deficit (6.7) (0.1) (2.2) (1.3) (4.3) (3.0)

Source: CEA, ICICIdirect.com Research

Jammu & Kashmir continued to face the highest peak deficit followed by Uttar Pradesh and Karnataka

Exhibit 10: Top six power deficit states (%)

Oct-13 Major deficit states J&K Bihar AP Karnataka UP TN Base Defict (20.1) (3.6) (3.9) (8.6) (15.2) (2.9) Peak Deficit (20.2) (6.2) 0.0 (9.1) (9.5) (4.4)

Source: CEA, ICICIdirect.com Research

There was capacity addition of 530 MW in October 2013 vs. target of 250 MW for the month. In YTDFY14, the total capacity addition was 5,908 MW vs. the target of 8,186 MW

Exhibit 11: Capacity addition in October 2013

Oct-13 Target Thermal Hydro Nuclear RES Total 250 250 Achieved 500 30 530 % 200 NA NA NA 212 Target 6,509 677 1,000 8,186 YTD FY14 Achieved 4,939 327 643 5,908 % 76 48 NA 72

Source: CEA, ICICIdirect.com Research

All-India installed capacity as on October 2013 was ~229.3 GW. Coal remains a key fuel for power generation in India 58.8% of total capacity is coal-based

Exhibit 12: Current capacity fuel mix

80 70 60 50 (%) 40 30 20 10 0 Thermal (Coal+gas) Nuclear Hydro RES 2.1 17.4 12.3 68.3

Source: CEA, ICICIdirect.com Research

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Exhibit 13: Growth of installed capacity since Sixth Five Year Plan
270 220 170 120 70 20 End of 6th plan End of 7th plan End of 8th plan End of 9th plan End of 10th plan End of 11th plan YTD 12th plan 63.6 42.6 85.8 105.0 199.9

229.3

Source: CEA, ICICIdirect.com Research

Exhibit 14: Plan wise capacity addition/target

70 60 50 (GW) 40 30 20 10 0 7th plan 8th Plan Target 9th plan Achievement 10th plan % (RHS) 11th plan 22.2 21.4 30.5 16.4 19.1 21.2 40.2 41.1 62.4 55.0 100 90 80 70 60 50 40 30 20 10 0

(GW)

132.3

Source: CEA, ICICIdirect.com Research

Transmission capacity addition was 411 ckm in October 2013 vs. target of 4,656 ckm for the month achieving 9% of the target

Exhibit 15: Transmission line capacity addition in October 2013

Oct-13 Transmission Lines (ckm) 800 kV HVDC 500 kV HVDC 765 kV 400 kV 220 kV Total Target 1,098 2,795 763 4,656 Achieved 98 313 411 41 9 % 9

Source: CEA, ICICIdirect.com Research

In October, 7,225 MVA of substation capacity was added against the target of 2,885 MVA

Exhibit 16: Substation capacity addition in October 2013

Sub Stations (MVA) 500 kV HVDC 765 kV 400 kV 220 kV Total Target 315 2,570 2,885 Oct-13 Achieved 6,000 945 280 7,225 % NA NA 300 11 250

Source: CEA, ICICIdirect.com Research

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(%)

Monthly news round up

The Power Ministry has said that four out of the seven identified debt ridden states that have so far opted for the financial restructuring package (FRP) provided by the Centre. Four states, Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu have restructured their short term liabilities of around | 43,000 crore. Restructuring of the remaining three states Bihar, Jharkhand and Karnataka is in the approval stage and awaiting Cabinet nod. In order to avail FRP, discoms have agreed to a few conditions, which include rationalisation of tariff, reducing technical and commercial losses, timely release of subsidy by state governments, regular metering of supply and private participation in distribution The Coal Ministry has decided to de-allocate 11 coal blocks after considering the recommendation of Inter-Ministerial Group (IMG) for coal. IMG had reviewed the performance of 30 coal blocks and recommended de-allocation of 11 coal blocks. This includes Ramchandi Promotional block, which was allotted to Jindal Steel and Power (JSPL). Initially, owners of these blocks were issued a showcause notice to explain the reason for delay in start of mining from these blocks. JSPL was asked to make a presentation with regard to delaying production from its four coal blocks -- Amarkunda Murgadangal in Jharkhand, Utkal B1 and Ramchandi Promotional block in Odisha and Urtan North in Madhya Pradesh. SAIL (for Sitanala mine in Jharkhand) and NTPC (for Pakri Barwadih mine in Jharkhand and Talaipalli mine in Chhattisgarh) was also asked to make a presentation for mines allotted to it The Maharashtra Government has approved Tata Powers Mundra UMPP application for a tariff hike as recommended by the Deepak Parekh panel. Maharashtras discom, Mahavitaran, had signed a PPA with Mundra for 800 MW capacity at a levelised of | 2.26/Kwh for 25 years. However, post the Indonesian coal fiasco the current rate has become unviable and CERC has recommended a compensatory tariff hike for a limited period. The Maharashtra government has set a few conditions such as: more than 80% supply of coal as per PPA, downward revision of tariff in case international prices fall, reduction in RoE and Interest rate (on debt taken by the Mundra SPV) as these measures will lower the tariff rate. While the panel has recommended a tariff hike of close to 56-59 paisa over the levelised tariff, the Maharashtra government is likely to allow only 35-39 paise hike, which would impact the discoms budget by ~| 300 crore. However, the state Cabinet has also provided Mahavitaran an option to cancel the PPA without giving any compensation, in case the tariff rate becomes unviable. Punjab and Haryana, receiving power from Mundra UMPP, have already opposed the CERCs approval to hike tariff and moved court against the decision

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ICICIdirect.com Coverage universe (Power)

Sector / Company JP Power(JAIHYD) NHPC (NHPC) NTPC (NTPC) PTC India (POWTRA) CESC (CESC) Tata Power (TATPOW) CMP Target Rating 17 19 Hold 18 151 57 380 77 19 161 57 435 84 M Cap (| Cr) EPS (|) FY13 FY14E FY15E 1.2 1.8 15.3 3.9 38.3 0.0 0.8 2.1 14.6 3.8 40.6 2.0 1.9 2.2 15.0 4.4 46.1 2.8 P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E 14.3 9.7 9.8 14.6 9.9 NA 21.8 8.4 10.3 15.0 9.3 38.7 9.2 12.3 8.2 11.4 10.0 8.2 12.9 5.1 8.2 8.5 27.6 7.5 13.5 11.4 8.1 5.2 8.5 9.6 8.6 5.8 9.0 6.9 7.0 12.6 2.6 7.2 7.0 8.3 9.2 10.1 5.6 7.6 12.5 7.3 7.7 7.1 8.1 7.6 11.6 8.9 8.9 8.2 5.5 8.1 15.7 5.0 9.1 2.0 3.5 8.8 13.7 4.8 9.5 4.0 7.1 8.6 13.1 5.4 10.1 5.6 5,127 Hold 21,763 Buy 124,177 Hold 1,687 Buy 4,741 Hold 18,273

Source: Company, ICICIdirect.com Research,

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Sector view: Over weight compared to index Equal weight compared to index Under weight compared to index Index here refers to BSE 500

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Chirag Shah PGDBM and Anuj Upadhyay MBA, FRM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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