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OPG Power Ventures back on an even keel

"We see this statement as evidence that the company has overcome the one-off events in Q3," said Cantor Fitzgerald
Power stations
Plant load factors are moving up again and cash collection is improving

OPG Power Ventures PLC (LON:OPG), the developer and operator of power generation plants in India, traded in line with expectations last year.

Meanwhile, operations in the current financial year have been going well, as the group prepares for the construction of the 62 megawatt (mw) Karnataka solar project, which is set to begin in the third quarter of 2017. The commissioning of its first solar project should strengthen and diversify cash flows.

In the year to the end of March, the company generated around 4.37bn kilowatt hours (kWh) of energy, up from 3.35bn the year before.

The plant load factor (PLF) at Chennai dipped to 76% from 78% the year before, but at its newer plant, Gujarat, the PLF rose to 63% from 52%, well on its way to its targeted level of 75%.

“These figures have been achieved despite one-off external factors reducing output at Chennai during Q3. The site has clearly recovered and in April achieved a PLF of 79%. Gujarat’s lower figure reflects its ramp up during the year. It achieved 66% in April and is expected to hit 75% during FY 18,” noted broker Cantor Fitzgerald, which is very bullish on the stock.

The Chennai plant realised an average tariff of 5.18 rupees (Rs5.18) in fiscal 2017 and a deemed off-take charge of Rs1.50 per unit for deemed generation.

The difference between the tariff and the cost of coal on a per unit basis - known as the clean dark spread - was Rs2.63 at Chennai.

At Gujarat, the average tariff per unit was Rs4.03 and the clean dark spread was Rs1.37 per unit.

“These compare with our forecasts of Rs 2.54 and Rs 1.50, which overall is slightly ahead given the greater output at Chennai,” Cantor commented.

“The spreads were driven by an average landed coal price of Rs 3,526/t. The company has purchased coal recently on short term contracts which in our view seems sensible given the apparent direction of coal markets. It may allow it to better protect spreads in FY 18 although we are not adjusting forecasts at this stage,” the broker revealed.

Cantor also noted that cash collection has been improving, with OPG collecting £24mln of outstanding revenues from the Tamil Nadu state electricity company, TANGEDCO, with the remaining£11mln still outstanding expected to be coughed up in the current financial year.

"During the year we stuck to our strategic priority of maximising the cash contribution of our existing assets and thereby making our business stronger for the long term,” said Arvind Gupta, chairman of OPG.

“We have delivered on our commitment to start paying dividends following a continued strong performance by our flagship plant at Chennai,” he added.  

“At the younger asset in our portfolio, Gujarat, our attention has been devoted to increasing the mix of higher value sales, accelerating slow receivables and establishing a significantly better debt repayment profile. We thus maintain our commitment to strong cash generation from our asset portfolio to fuel dividends and growth," the OPG chairman concluded.

Cantor reiterated its ‘buy’ recommendation and punchy 124p target price.

The shares rose 4.2% to 43p on the trading update.

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OPG Power Ventures Plc. Timeline

Big Picture
October 12 2018

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