Newly elected Prime Minister Narendra Modi is acutely aware India’s creaking infrastructure will, if not upgraded, undermine the country’s bid to become an economic super-power.
Since sweeping to power in May, he has made a number of pledges, key among them is a promise of 24-7 electricity supply to every home and business in the country.
It sounds laughable to us sitting here in the West with an always-on connection, but India is blighted by periodic brown-outs affecting tens of millions people.
And according to an article in the Times of India, the problem is going to get worse before it improves in the manner Modi envisages.
While the northern and western grids are showing signs of stabilisation, the southern, eastern and north-eastern regions are likely to slip further, the paper reveals.
This is obviously a huge problem for India’s inhabitants, but it also creates the perfect storm for companies such as OPG Power Ventures (LON:OPG), whose business is producing electricity for a starved market.
Based mainly around Chennai, Tamil Nadu, its operations are in one of the worst affected regions.
OPG has plants producing 270 megawatts in operation and a further 492 under development.
That strong demand for electricity means it is cash generative and profitable.
Transformational will be the new plants switched on this year.
At Chennai, OPG said recently its latest development had passed another milestone with the hydraulic testing of the boiler.
As a result the turbine, generator and instrumentation at the 180mw plant can be interconnected and the unit insulated.
This will take about four months, following which trial commissioning can begin.
At the 300mw plant being built at Gujarat hydraulic testing has been completed and assembly and installation of both turbines and the generator and instrumentation is now “significantly advanced”.
The state-owned electricity transmission company is now working the power lines infrastructure for the plant. Infrastructure is already in place at Chennai.
At the same time, OPG has expanded its relationship with Noble Group, which will see the company take greater control of logistics involved in the supply of coal to its operations.
Freight charges currently make up between 25% and 40% of the costs for coal imported to feed OPG’s Indian power plants.
It has, however, now agreed a new long term freight arrangement with Noble’s chartering unit which has until now handled OPG’s coal shipments.
This is expected to deliver cheaper shipping rates than currently available under long term contracts.
The current year is one of significant change that will see the capacity rise significantly and City broker Investec has assessed the financial impact of brining on new generating capacity.
It is predicting revenues will grow by more than 50% to £153mln this financial year, giving EBITDA of almost £45mln, rising to £89.2mln on turnover £300mln in the 12 months to March 2016.
Changing hands for 99p and up 77% in the year to date, the company’s shares are currently undergoing something of a re-rating.
However, according to the brokers, there is still a little way more for this rally to go.
Investec reckon OPG is worth 140p a share, while Cenkos remains a ‘buyer’ at current levels.
Cenkos analyst Andrew Blain said: “With performance consistently above expectations for the past two years and the Group’s Chennai IV and Gujarat plants set to treble capacity this year, we believe OPG is positioned to deliver very strong growth in earnings and cash flow.”
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