Power it shall be-Hameed-14jun2k5

Power it shall be

AS INDIA SWEATS out another summer of chronic electricity shortages, the only likely beneficiaries for now are investors in the country's power stocks.

India's ability to generate power fell more than 11% short of peak demand in the year ended March 31, 2004, the most recent period for which data are available. And the gap is widening as consumption and manufacturing surge with a booming Indian economy.

For the past six weeks, large swathes of Maharashtra, the country's richest state, have endured blackouts lasting as long as nine hours a day as shortages at peak periods reached about 4,000 megawatts, or about one-third of total demand.

Power shortages have long been a fact of life for many poorer Indians; almost half the population has no access to electricity at all. But even consumers and industries that are connected to power grids are increasingly frustrated by erratic supplies resulting from aging power plants and leaky transmission lines. As much as 40% of the power generated nationwide is lost in transmission because of theft or technical problems, according to Power Ministry officials in New Delhi.

Now, Prime Minister Manmohan Singh's government is promising an all-out assault to fix the power problem, vowing that all Indians will have access to electricity by 2012. That will require new power plants capable of generating 100,000 megawatts of new power and will cost at least $100 billion, according to industry analysts. Already, a slew of new power-plant projects and transmission upgrades have been announced this year by the national government and various state governments.

That's good news for major power-equipment suppliers and their shareholders, who have seen share prices rise over the past two years. But while some power stocks may now look costly, many India-based analysts argue that there's still room for gains given the enormous projected demand for equipment used in power generation and transmission.

Take Bharat Heavy Electricals, a listed state-controlled power-equipment manufacturer. Investors have bought the stock aggressively on expectations the company will play a big role in upgrading India's power network. That's based on an order book crammed with contracts valued at 320 billion rupees, or about $7.3 billion.

Bhel's share price has risen about 12% this year, outperforming the Bombay Stock Exchange, which has edged up less than 1%. In a research report issued on May 27, Bear Stearns & Co. said Bhel had a
price-to-earnings ratio of 24.7 for the year ended March 31. That was considerably higher than National Thermal Power Corp.'s PE of 13.1, and Tata Power Co.'s 14.2.

But strong orders and solid growth pipeline for Bhel's core products such as generators, transformers and transmission equipment makes the stock a smart buy. Bhel's earnings are expected to rise 36 per cent to Rs 56 per share in the current fiscal year from Rs 41 per share the year earlier. This gives a 12-month target price of Rs 1,250 rupees for Bhel, a gain of 42 per cent over the last closing price of Rs 881. BHEL looks the best of the lot at the moment.

Analysts also expect state-controlled National Thermal Power, India's biggest power producer, to prosper from the infrastructure build-up. NTPC plans to double its installed power-generating capacity to 40,000 megawatts by 2012, mainly through new coal-fired thermal plants and hydro-electric plants.

NTPC has the large scale needed to be profitable in a sector where many customers often pay less than full market prices. The power sector is riddled with cross-subsidies designed to provide cheap power to rural areas, while making up the difference by charging more for industrial consumers.

With the scale NTPC has, it can continuously add capacity. Most give NTPC a 12-month target price of Rs 109 a prospective 32 per cent gain over today's closing price of Rs 85. NTPC's earnings per share are expected to rise to Rs 6.40 for the year ending March 31, 2007, from 5.70 rupees in the current fiscal year.

Power Equipment producers are in favour

Asea Brown Boveri (India) Ltd., a subsidiary of Zurich-based ABB, which provides automated equipment for power projects. ABB India's share price, though high compared with other Indian and regional power stocks, is fairly valued given the company's 63% jump in profit to Rs 275 million rupees in the quarter ended March 31 from a year earlier.

ABB India's stock could rise to Rs 1,695 rupees this year. If things start to pick up it could even go to Rs 2,000. Other possible winners in the power game include Tata Power, a private power generation and distribution concern, which is well placed to capitalize on New Delhi's efforts to privatize electricity supply.

So are utilities

North Delhi Power Ltd., Tata Power's joint venture with the provincial government that administers New Delhi, has cut transmission and distribution losses in the city by almost 20%. Tata Power's profit for the quarter ended March 31 more than tripled to 1.7 billion rupees from a year earlier. A research report last month by CLSA Asia-Pacific Markets said Tata Power's plans for a new 1,000 megawatt plant in Maharashtra and expansion of existing plants would ultimately benefit the stock.

But most industry analysts say the biggest upside for Tata Power could come in helping upgrade India's threadbare national power transmission networks.It's going to be one of the long-term major players in India's power sector.