The Torrent Power stock saw some correction in its price on Thursday after consecutive days of rally, taking its price up 27 per cent since the new year. News flow such as Petronet LNG renegotiating its gas prices with RasGas of Qatar and shareholders of the company giving a go-ahead for an increase in debt has led to the spurt in stock prices.
Three of Torrent Power’s gas-based plants – SUGEN, UNOSUGEN and DGEN – are currently operating at sub-optimal levels. SUGEN, which has a long-term off-take agreement with RasGas, is likely to benefit the most from Petronet’s negotiation.
Petronet has revised its long-term purchase price from RasGas by $5.5 per million British thermal units or mBtu (from $12.5 per mBtu to $7 per mBtu) and limiting cost escalation to $1.34 per mBtu for every $10 increase per barrel of crude oil. Devam Modi of Equirus Securities says RasGas price revision would lead to economically feasible variable cost.
“SUGEN will see an immediate rise in plant load factor (PLF) to 75 per cent, while UNOSUGEN and DGEN will ramp up gradually to 40-50 per cent PLF,” he said. He expects the blended gas-based PLF to increase from 30-35 per cent estimated in FY16 to 50-70 per cent in the next three years and return on equity to expand from 12 per cent estimated for FY16 to 18-20 per cent by FY18-19.
Currently, much of Torrent Power’s fuel for gas-based units is procured from government’s auction scheme for re-gasified liquified natural gas, where minimum PLF of power plants is mandated at 25 per cent.
From a low base, higher PLF helped it expand its revenue by 17 per cent, while profit more than trebled to Rs 466 crore in second half of FY16 y-o-y. According to Ambit Capital, further improvement could be expected post the second round of auction in 2015 (held in May) as UNOSUGEN and DGEN are likely to operate at 50 per cent PLF between October 2015 and March 2016 (compared with 35 per cent earlier) and SUGEN might maintain its PLF at 35 per cent.
Next round of auctions in March 2016 could improve Torrent Power’s position further. That said, the recent run up in stock price has resulted in its FY17 price to earnings ratio (10.85 times) appear expensive against peers such as Reliance Power (10 times) and JSW Energy (8.8 times).
