Proactive Investors - Run By Investors For Investors

OPG Power has solid base and many options

Tackling the country’s chronic shortage of power is a major plank of the Indian government’s industrial strategy
OPG Power has solid base and many options
Wind is one possibility for OPG, suggets broker

Indian power utility OPG Power Ventures (LON:OPG) now has 750 megawatts (Mw) of electricity generating capacity available after completion recently of a five year development programme.

Output from its power plants rose to 600Mw in the quarter ended 30 September, compared with 270Mw in the comparable period, but with the Gujarat plant now ramping up to full operation this capacity has risen to 750Mw.

Gujarat has 300Mw capacity with four plants at Chennai providing the remainder.

Chennai’s output is sold to industrial consumers (257Mw) tied into three year contracts, 80 Mw supplied to the Tamil Nadu Generation and Distribution Company for 15 years and 77Mw on short-term supply.

Tackling the country’s chronic shortage of power is a major plank of the Indian government’s industrial strategy, though new stations have been hampered by a very slow re-distribution of coal licences.

In Tamil Nadu state, where OPG is based, the projected power deficit compared to target was 5.4% in 2015.

In Gujarat, the supply demand balance was in surplus in 2015 but well below the 5% ‘spinning reserve’ required by India’s national plan to secure reliability of supply.

All of OPG’s stations are coal-fired and this remains the major variable cost for the company.


Opportunities for OPG lie both in new thermal stations and also in the burgeoning renewable market in India, according to house broker Cantor Fitzgerald.

“OPG has built up a strong competitive advantage through relationships and experience,” it said.

“We see OPG as a leader in captive supply and its existing relationships with a customer base represents a potentially strong and reliable source of demand.”

OPG has an advantage in that it can bundle renewable supply with its conventional supply to meet customers’ expectations, added the broker, which sees solar and wind as possible new avenues for the company.

In thermal (coal), Cantor points out there is a site next door in Chennai that could house a 700Mw station, while land surrounding the plant in Gujarat might be able to house a similar-sized unit.


Now, with Gujarat in commercial operation, there are plenty of other options open, Cantor suggested.

Renewable energy aside, OPG may seek equity capital at a project level for new developments.

“While this would reduce OPG’s stake in any project, it would increase the opportunity set and allow it to participate in potentially higher return projects.”

The broker believes that with the right projects, optimally structured, OPG could add a possible 87p to its existing 130p target price, “creating a total value of over £2 through reinvestment in the period to 2020”.

The next year or so is likely to see new project announcements driving positive news flow.

With Gujarat now up and running, OPG can also now move towards setting a dividend policy, said Cantor.

It estimates that even with a dividend of 1.56p, free cash flow from 2017 onward will be around £45mln annually to be used either for new projects or to pay down debts of at £254mln at end 2015.

Cantor’s target price in February 2016 was 130p. 

View full OPG profile View Profile

OPG Power Ventures Plc. Timeline

Related Articles

oil and gas operations
May 01 2018
It was a year of portfolio building and progress for the onshore UK-focused minor, punctuated by improved production volumes and a number of acquisitions with value-adding potential
Exploration oil well
November 24 2017
The company has exploration and development upside with its suite of North African oil assets
picture of oil field
June 26 2017
“Ntorya-3 is ready to go but want to make sure, we maximise as many targets as we possibly can.”

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use