Why 1Q15 is deemed potentially trendsetting for India power sector

Spotlight is partly cast on effective returns.

As 1QFY15 will be the first quarter where earnings for NTPC and Power Grid (PWGR) will be based on Central Electricity Regulator’s (CERC's) 2014-19 Tariff Regulations, focus will be on effective returns and any under-recovery of costs.

According to a research note from Nomura, as regards private IPP’s company-specific developments (capacity start-up and fuel mix), it expects improved QoQ
performance on the back of lower fuel cost (6-8% lower INA/RSA prices + 3% INR/USD appreciation) and improved utilization levels (PLF).

Nomura noted that it is looking for the following in the results: Effective RoE for NTPC andPWGR as returns based on the new CERC regulations; and coal mix, financing cost and ex-Compensatory Tariffs (CT) earnings for Adani.

Further, it also is looking for sustainability of FSA realization (INR1334/ton excluding incentives in 4QFY14) and e-auction sales volume/realization for Coal India (COAL); and contribution from Butibori facility to Reliance Power’s (RPWR's) consolidated financials.

Here's more from Nomura:

Where do we stand vs. mean consensus forecast (Bloomberg)?

ADANI: Our normalized loss forecast at INR5.8bn is substantially higher than consensus forecast at INR2.6bn loss. While our revenue forecast for ADANI is in-line, our EBITDA and bottom line forecasts are significantly weaker as we expect higher proportion of imported coal utilization and a further sequential uptick in finance cost & depreciation.

PWGR and NTPC: Broadly in-line; our normalized PAT forecast for PWGR/NTPC is 3%/2% above/below consensus respectively.

JSWE: Our EBITDA forecast is in line with consensus, but normalized PAT forecast is ~5% below consensus.

RPWR: Though our normalized EBITDA/PAT forecasts for RPWR are 8%/11% below consensus, we believe mean consensus forecast is not representative (limited sample size, wide range).

COAL: Our revenue/realization forecast for COAL appears in line with consensus, but normalized PAT is 5% below consensus. Assumed provisioning for Over Burden Removal (OBR) and non-operating income would likely be the swing factors.