Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

The Big Picture: OPG a direct play on Indian power demand recovery?

The landslide win by the BJP party in India brought with it hopes of an economic and business revival in the world's largest democracy
The Big Picture: OPG a direct play on Indian power demand recovery?

The landslide win by the BJP party in India brought with it hopes of an economic and business revival in the world's largest democracy.

Earlier this month the party Bharatiya Janata Party led by now prime minister Narendra Modi ousted the ruling Congress party in the biggest margin win for three decades, swept to victory by public desire for change.

Analysts now expect the new administration, which has pledged to be more business friendly, to focus on boosting infrastructure and manufacturing to put India back on a "materials intensive" growth after a blip of two years.

However, to achieve this, one thing the new government will need to solve is India's power shortages and problems of an infrequent and intermittent supply.  Three years ago, more than 300 million citizens had no access to frequent electricity out of an overall population of around 1.23 billion.

One of the major problems is the lack of capacity to generate electricity, despite India's position as the fourth largest consumer of energy.

And one of the best companies around to help the country achieve better power generation is AIM-quoted OPG Ventures (LON:OPG).

The firm operates power plants mainly in southern India, where the shortages are most acute, and says it has already witnessed this year a step change in scale and profitability in its operations.

It has three plants in Chennai in the state of Tamil Nadu, with a fourth in development. It also has two plants in development - one in Gujarat state, expected to be commissioned this year, and one in Bellary, expected in 2015.

Profits rose by 70% to almost £18mln in the year to March, with sales up by 76% at £98.8mln.

US heavyweight broker Jefferies, which has started covering OPG shares with a 'buy' rating, reckons the firm is a direct play on the recovery in power demand in India.

"OPG is a focused, niche power generator in India with a proven track record in execution versus planned capacity addition," said analyst Lavina Quadros.

Quandros noted that the firm has 234MW operational capacity in Chennai, which is expected to increase by three times to 694 MW in full year 2015 and 2016 estimates.

She added that South India has the highest power deficit in India, which is expected to continue and she highlighted that the firm's current growth portfolio is fully funded.

"OPG’s selling model is primarily linked to short- and medium-term power price movements in the context of persistent power shortfalls. Hence, pricing is not subject to regulatory approval, barring one Chennai capacity of 80 MW, said the analyst, who targets a price of 120p for the shares - an increase of 17p from where they are now at 103p.

Meanwhile, City firm Investec yesterday rated the shares a 'buy' and lifted its target by 20p to 140p.

"With the catalyst of significant capacity increases in 2014/15, we believe OPG’s share continues to have significant re-rating potential, especially given the result of recent general elections in India," said analyst Harold Hutchinson, citing additional capacity forthcoming of 180MW in Tamil Nadu and 300 MW at Gujarat.

View full OPG profile View Profile

OPG Power Ventures Plc. Timeline

Related Articles

The project site in Greenland
March 22 2018
Kvanefjeld is forecast to be the largest producer of key rare earth elements for electric vehicles.
oil wells
July 13 2018
Columbus’s own production averaged 553 barrels per day over the quarter to June
Oil and gas workers
April 18 2018
Tapi Aike, located in the Austral basin, was one of most hotly contested blocks when it was put out to tender

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