Growth in domestic power demand during Q4FY22 boosted generation volumes and power purchase by discoms although rise in international coal and gas prices is expected to be a dampener for plants dependent on such fuels. All-India power demand was up 2% YoY during the quarter despite a higher base. Thermal PLF averaged 64% in Q4FY22 leading to 9.6% YoY increase in Coal India's (CIL) offtake to 180mnte. Daily peak power demand for Q4FY22 averaged 187GW (vs 179GW in Q4FY21). During 1-12th Apr'22, average daily peak demand was >194GW - of which, >140GW was consistently catered by thermal power. Higher power demand and all-time high international coal prices will continue to aid offtake growth for CIL, and boost PLFs of thermal plants of NTPC and others with domestic coal linkages. Power demand, billing and collection improved at all distribution areas and learnings from past lockdowns and smart meter installations will help discoms tackle upcoming disruptions, if any. NTPC, CIL, NHPC and Genus Power remain our top picks.
Merchant prices in Q4FY22 were higher YoY with IEX MCP averaging Rs5.4/kWh (Rs3.5/kWh in Q4FY21). International coal prices reached stratospheric levels due to the Ukraine crisis, crossing all-time highs several times in Mar'22. Prices continue to be elevated with both Australian and South African thermal coal hovering between US$250-300/te, impacting importers. Gas prices were also high during the quarter as Henry Hub prices remained at multi-year highs of >US$6/mmbtu. All-India power demand growth was 7.8% YoY in FY22, boosting coal PLFs as well as RE generation. Of the total 17.2GW of net all-India capacity addition in FY22, RE accounted for 15.5GW (more than double of FY21 at 7.7GW), boosted by commissioning of 13.9GW solar PV capacity. We expect RE capacity addition to increase to 18-20GW in FY23E. With BCD on imported solar cells and modules now in place, we expect solar project auctions to pick pace as it provides price stability. All-India cumulative smart meter deployment stood at 4.1mn units by FY22-end, boosted by deployment of >0.6mn meters in Q4FY22. Smart meter deployment is expected to increase exponentially with the Rs3trn RDSS scheme under implementation and >Rs210bn worth of tenders expected to be awarded over the next 4-6 months. We expect continuation of policy actions, higher capex and robust tendering activities in the sector in FY23E.
Q4FY22E preview - Key actionables:
- Maintain NTPC as a top pick: At Q4FY22-end, NTPC group's commercial capacity reached 69GW, adding 3.3GW (net) during FY22. Another 16GW capacity is under construction, including 2.8GW RE. In Q4FY22, NTPC's standalone generation increased 4.2% YoY to 80.4BUs, aided by capacity addition and higher coal PLFs. We expect the company's standalone recurring PAT to increase 10.9% YoY.
- CIL's profit to be boosted due to higher volumes and e-auction premiums: CIL's Q4FY22E PAT is estimated to be 24.8% higher YoY at Rs57.3bn, mainly due to 9.3% growth in offtake and 2% YoY increase in average realisation at Rs1,513/te. Domestic coal demand is likely to remain high due to high overall power demand, high international coal prices and low coal inventory at power plants (9 days).
- NHPC is our other top pick in PSU space: NHPC's increase in standalone capacity from 5,551MW to 8,351MW by FY24E takes its regulated equity to Rs221bn in FY24E, at a CAGR of 14.5%, resulting in an earnings CAGR of 11%. We estimate NHPC's Q4FY22E adjusted PAT to increase 3.9% YoY.
- Genus Power is a top pick in private sector: Genus Power is the largest beneficiary of the upcoming Rs3trn revamped distribution sector scheme of the GoI. We expect its Q4FY22E revenues to increase 7.5% YoY due to better execution and 270bps improvement in EBITDA margins QoQ due to execution of higher-margin orders.