Indian Utilities Update - Motilal Oswal

INDIAN UTILITIES: Analysis of reporting by power traders; Forward price curve sloping with July deliveries at Rs3.49/unit

Short-term power contract volumes for March 2011 stood at 1,410MUs (down 55% MoM). Also, most contracts in March were for delivery period of 1 month.

In March 2011, while the power exchange rates spiraled to Rs10-11/unit given elections in TN and WB, bilateral rates continued in a range of Rs3.5-6.0/unit.

Forward curve for March 2011 is sloping downwards and power to be delivered in July 2011 is being contracted at Rs3.49/unit.

The contracted rates in March 2011 for power deliveries are: April Rs4.68/unit, May Rs4.85/unit, June Rs3.99/unit and July Rs3.49/unit.

Indian Meteorological Department has released FY12 monsoon forecast today and this will give some initial clarity on merchant prices for the season. Improved monsoons impact merchant prices in two ways: higher hydro generation and lower demand (largely from agriculture). In 2QFY11, power demand degrew 2.1% YoY, and contribution of hydro power to total generation was ~22% (vs ~18% YoY); this led to sharp correction in power prices (to Rs2.5-3/unit).

Source : Equity Bulls

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