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OPG Power Ventures comes of age

Last updated: 14:35 24 May 2016 BST, First published: 07:40 24 May 2016 BST

Power plant. OPG has plants in Gujarat and Chennai
OPG is striving to be the leading developer and operator in the growing Indian energy sector

Indian power generator OPG Power Ventures PLC (LON:OPG) is to start paying dividends and is eyeing a move from Aim to London’s main market.

In a trading update, the company said that two months into the current financial year it is seeing greater revenue visibility. Cash collection from customers at its Chennai plants is now happening more promptly, while cash flows from sales are expected to improve as a result of multi-year sales contracts.

Meanwhile, the Gujarat operations will also start contributing more to revenues as production ramps up to the levels expected by management. Recently the plant has operated at a load factor in excess of 50% and this is expected to rise steadily to around 75% by the end of 2016.

The company expects to achieve an average tariff in the year to the end of March 2017 of around 4.40 rupees, with the tariff trending in line with the geographic sales mix and the net cost of delivered coal. 

While the cost of imported coal remains subdued this has been partially offset by a nationwide increase in coal cess (local duty) applicable to all users of coal, OPG revealed. In the past an increased coal cess has led to an increase in tariffs, but management has taken a prudent approach and not incorporated any tariff increases into its budget assumptions.

Looking in the rear view mirror, the company said the year to 31 March 2016 (FY16) ended in line with market expectations.

Aggregate generation increased by 70% in FY16 to 3,177 gigawatt hours (GWh) from 1,861 GWh in FY15, as the Gujarat plant commenced supplies from its first unit in April 2015 and from its second unit at the end of January 2016.  

Delivered coal costs were on average around 7% lower in FY16 than in FY15.

The company continued its policy of making loan repayments, paying off £23mln during the year, while further evidence of the company’s cash generation abilities was provided by news that the company intends to start paying dividends this year.

The company expects to pay an interim dividend for the current financial year at the end of calendar year 2016. OPG's dividend policy will, initially, seek to pay out 15% of full year net earnings, subject to the level of free cash flow generated, calculated after scheduled debt repayments and expected capital expenditure. 

Having achieved one key milestone in announcing it is to start paying dividends, the company is looking at another in the form of a full stock market listing in London; OPG is currently listed on Aim.

"We are at a point of significant transition, where we hope to be recognised for our pursuit of the best results from our operational assets, for maximising our cash flows and for delivering on our promises in establishing a dividend paying company. We believe that, as India leads global growth amongst major economies, we are uniquely placed to grow our business and our earnings and to become the leading developer and operator in the Indian power sector,” said Arvind Gupta, chief executive of OPG.

Brokers were also quick to praise the company's promise to become dividend-paying in 2017.

"We view OPG's clear commitment to a dividend in FY 2017, with an interim payment this calendar year, as extremely positive," said Adam Forsyth of Cantor stockbrokers.

“We think it reflects the company’s confidence.”

The broker reiterated its ‘Buy’ rating for OPG, with a target price of 130p. 

 

--UPDATE: BROKER COMMENT--

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