 "Gas-based power plants see a reversal in fortunes")
Companies like GMR Infrastructure, GVK Power Infrastructure, Torrent Power and Lanco Infratech which have large gas based power generation capacities could now have some reasons cheer.
I think with the price hike for gas, the market is hoping for higher gas output and availability to the power sector, which is going to be positive for the some of the power companies like Torrent Power. Today about 50% of about all India gas based capacity of 25,000 mw capacity is sitting idle," said Rabindra Nath Nayak of SBICAP Securities
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Though this could take some time, the experts also believe that one needs to see if these companies will be able to the costly power. If the gas is priced at $8 per unit, the experts believes that the companies will be able to generate power at about Rs 5 per unit, which is definitely considered to be higher compared to earlier, but this is looked positive because even at this rate the companies will be able to produce power at 40-50% cheaper rate than the power produced from the imported gas at around $12-13 unit. Further, many of these capacities have a pass through clause. Even in the worst case, the gas based power can be used for the industrial consumers and could be blended with the cheaper power in the peak seasons.
"I do not think demand will be an issue recently we signed power purchase agreement at about Rs 4.9 per unit. There are other players which achieve signed PPAs in excess of Rs 5 per unit. In my view the demand will take care of supply even at higher prices," said Madhu Terdal, president of new & emerging business, GMR Infrastructure
More importantly today the larger issue is in terms of availability, the companies have already put up their plants but there is no gas which is hitting the profitability and the balance sheet of these companies.
The biggest player in this space Torrent power with the 1,250 mw of gas based power generation capacity is currently operating at 25% Plant Load Factor (PLF) compared to 75% PLF achieved by its 400 mw coal based power generation capacity. “Torrent's two gas-based plants of about 1,600 Mw where the company has invested about Rs 2,400-2,500 crore alone on a conservative basis have a book value of Rs 50 a share. However the market has completely writing off that, but those who are willing to take a view on gas availability (increasing) there is a fair chance of valuation re-rating,” said Devam Modi, who is tracking the company at Equirus Capital. GVK too is grappling with the similar situation, the company's JP-II and Gautami gas based power plants are operating at 0% PLF, due to lack of gas supply from KG-D6 basin. Its other power plant, JP-I is operating at 46% PLF, thanks to gas supply from GAIL.
At this juncture the market is not willing to give any value to its gas based power assets.
Increased availability of gas can also hugely benefit GMR, which has total 1300 mw of gas based power generation capacity. In fact the market has completely ignored its 768 mw GMR Rajahmundry Energy project because of lack of gas.
About this project, Vishal Sharma, who track the company at BNP Paribas said "We believe the downside from this asset is already in the price. The plant is not generating cash due to lack of gas, and therefore, incrementally, if and when the gas supplies resume, there should be upside from this asset"
"We are hopeful with the surplus gas available from ONGC, Cairn India, GSPC our other plants GMR Energy and Vemagiri, should reach 30-40% PLF. As far as Rajahmundry plant is concerned if the supply from the Reliance's KG basin improves it will benefit," said Madhu Terdal, president of new & emerging business, GMR Infrastructure.