POWER SECTOR

Why power sector?

• My understanding –
  
  • Still cities like Delhi are falling short of power supplies. With growing urbanization, more requirement should be noticed in times to come.
    
  • With concepts like SEZs coming up in all major cities and government's push to infrastructure sector, demand for power is bound to increase manifold.
    
  • Interest of foreign funds in our nuclear power sector also highlights importance of the sector.
    
• Facts –
  
  • According to a report by KPMG and CII, India's energy sector will require an investment of around US$ 120 billion-US$ 150 billion over the next five years. (Source: IBEF)
    
  • A recent study by consultancy major McKinsey estimates India's power demand to increase from the present 120 gigawatt (GW) to 315 GW–335 GW by 2017, if India continues to grow at an average of 8 per cent over the next 10 years. This would require a five- to ten-fold rise in power production, entailing investments worth US$ 600 billion over the next ten years. (Source: IBEF)
    
  • So far this year, 11 Indian companies have raised a combined $2.6 billion in equity, and three dozen more, including GVK Power, are looking to raise nearly $10 billion, according to Thomson Reuters data. (Source: Power sector to drive India capital raising | Reuters.com)
    

Which companies have been analysed?

Stocks having following traits:

1. Listed for more than 3 years.
   
2. Positive cash flows for more than 3 years
   
3. Below average industry P/BV ratio
   

Parameters for comparison

Ratio	Industry Average* FY 2008	Median* FY 2008
Long Term Debt-Equity Ratio	0.52	0.45
Current Ratio	1.97	1.75
Interest Cover Ratio	21.27	4.16
PBIDTM (%)	74.59	43.08
ROCE (%)	9.27	8.37
PAT Growth	131%	30%

* Data for following companies included Indowind, Reliance Infrastructure, Energy Development, Powergrid, TATA Power, NTPC, GVK, KSK Energy Vent, JaiprakashHydro, Entegra, NEPC, Torrent Power.

Companies worth investing

Ratio	Mar 2008	Mar 2007	Mar 2006		Mar 2005	Mar 2004	Remarks
Indowind
Long Term Debt-Equity Ratio	0.69	0.14	0.19		0.15	0.09	Average debt levels vis-à-vis industry
Current Ratio	5.46	3.42	8.27		3.11	1.99	very strong liquidity
Interest Cover Ratio	3.76	2.8	2.64		2.59	2.43	Average
PBIDTM (%)	49.39	47.03	43.16		52.44	14.96	Average
ROCE (%)	6.34	14.24	15.73		18.18	11.47	Below Average
PAT Growth	9%	19%	33%		34%		Concern over falling growth rate
Energy Development
Long Term Debt-Equity Ratio	0	0.18	0.6		0.91	1.09	very strong solvency with almost zero debt
Current Ratio	1.23	1.35	2.55		27.62	18.5	concern on liquidity
Interest Cover Ratio	49.84	75.65	7.11		2.62	1.34	Strong
PBIDTM (%)	36.78	24.85	90.6		88.24	80.25	Volatile and average growth
ROCE (%)	25.61	19.13	14.88		13.42	9.67	Constantly rising and above average return
PAT Growth	80%	121%	25%		240%		Volatile but above average growth
rELIANCE INFRASTRUCTURE
Long Term Debt-Equity Ratio	0.51	0.52	0.5		0.54	0.39	Average
Current Ratio	2.41	2.95	2.64		2.23	1.47	Strong
Interest Cover Ratio	4.73	4.48	5.07		4.8	6.97	Average
PBIDTM (%)	27.36	23.62	33.42		23.92	22.96	Below Average
ROCE (%)	9.8	8.69	9.68		8.52	10.13	Average
PAT Growth	35%	23%	25%		42%		Above Average