Last checked at 11 Feb 2020 07:00
11 February 2020
OPG Power Ventures plc
("OPG", the "Group" or the "Company")
Trading update for Nine Months of FY20
Summary
For the nine months to 31 December 2019:
·; Total generation of 2.09 billion units (2.15 billion units for nine months FY19);
·; Plant Load Factor ("PLF") at Chennai was 77% (79% for nine months FY19);
·; Average tariff for nine months FY20 was Rs 5.67 (Rs 5.33 for nine months FY 19);
·; £13.3m term loan principal repayment, representing 3.3 pence per share added in value to shareholders' equity;
·; Gross debt reduced by 22 per cent to £62.5m (£80.4m at 31 March 2019);
·; FY19 full year scrip dividend of 0.6p per share (FY18: 1p per share) paid in January 2020.
Arvind Gupta, Executive Chairman, commented:
"We are pleased to report another strong operational performance for the first nine months of FY20 and we expect to meet market profit expectations for our full FY20 results."
For further information, please visit www.opgpower.com or contact:
OPG Power Ventures PLC | +91 (0) 44 429 11211 |
Arvind Gupta / Dmitri Tsvetkov | |
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Cenkos Securities (Nominated Adviser & Broker) | +44 (0) 20 7397 8900 |
Russell Cook / Stephen Keys | |
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Tavistock (Financial PR) | +44 (0) 20 7920 3150 |
Simon Hudson / Barney Hayward / Nick Elwes |
Introduction
In 2018, the Board took the decision to focus on our profitable, long-life assets in Chennai, and to prioritise deleveraging to enhance and increase the value to shareholders' equity. Given the strong cash flows generated by the Chennai plant we remain on target to deliver a debt free business by the end of 2023 with free cash flows thereafter providing significant returns to our shareholders.
The increase in equity value, since the adoption of this strategy is:
| FY18 - FY19 | 9m FY20* | Expected Q4 FY20* | Expected FY 20* | Expected FY21* |
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Term loan principal repayments | £42.9m | £13.3m | £4.4m | £17.7m | £16.7m |
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Addition to shareholders value as a result of term loan principal repayments (per share) | 11.1p | 3.3p | 1.1p | 4.4p | 4.2p |
*Based upon INR/GBP closing exchange rate at 31 December 2019 of 93.49 and 400.7 m of Ordinary Shares in issue
The Board believes that the strategy of maintaining operational excellence and the paying down of borrowings is for the clear long term benefit of all our stakeholders.
Operations Summary
Chennai - Total generation maintained at 2.09 billion kWh and PLF of 77%
| Nine Months FY 20 | Nine Months FY 19 | FY 31 Mar 2019 |
Generation (million kWh) |
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414 MW | 1,889 | 1,969 | 2,471 |
Additional "deemed" offtake at Chennai | 204 | 176 | 234 |
Total Generation (MUe)1 | 2,093 | 2,145 | 2,705 |
Reported Average PLF (%) |
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414 MW | 77% | 79% | 75% |
Average Tariff Realized (Rs) |
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414 MW | 5.67 | 5.33 | 5.41 |
Note:
1 MU / Mue - millions units or kWh of equivalent power
In Q3 FY20, India's power demand growth witnessed a decline of 6.2% YoY, compared to growth of 6.7% in Q3 FY19, primarily attributable to subdued economic activity in the country.
In spite of the subdued economic activity and a decline in thermal generation growth of 11.3% in the country, total generation at the Chennai plant, excluding deemed generation, in the nine months of FY20 was 1.89 billion units, 4 per cent less than in the nine months of FY19. This decrease in generation was primarily due to decreased demand by automobile and steelmaking industrial customers as Indian economic growth moderated slightly. Average tariffs realised in the period were Rs 5.67 per kWh and for FY20 the tariff realization is expected to be similar (nine months of FY19: Rs5.33; FY19: Rs5.41 per kWh). The higher tariff realisation is primarily due to an increase of tariff in 2018-19, the full impact of which will be reflected in FY 2019-20.
Focus on Maximising Asset Performance and Deleveraging
The average landed cost of coal was £49.0 (Rs 4,363) per tonne in the period, (£49.3 or Rs 4,517 per tonne in FY19). This reduction in coal cost is primarily due to moderation in international coal prices.
As at 31 December 2019, total borrowings were £62.5 million, including term loans of £53.9 million and working capital loans of £8.6 million. The remainder of the Chennai plant term loans are scheduled to be fully repaid by Unit II and III in calendar year 2022 and Unit IV in Q3 23.
Scrip Dividend and Issue of Equity
As previously reported, the final FY19 scrip dividend of 0.6 pence per share was paid in January 2020 and a total of 12,823,311 new Ordinary Shares were allotted by the Company to shareholders. Following the issue of the scrip shares the Company has 400,733,511 Ordinary Shares in issue.
62 MW Karnataka Solar projects
All our Karnataka solar projects situated north of Bengaluru are operational and have met all critical operating metrics. Currently the projects are receiving a tariff of Rs 4.36 per kWh. We expect the Capacity Utilisation Factor to be 17-20 per cent during FY20. As previously announced, the Board has decided to focus on the core thermal power plants business in Chennai and the Karnataka solar projects remain in a disposal process.
The Indian Economy and Power Sector
As per the Monetary Policy Committee of India (MPC), global economic activity remained subdued over the last quarter, though there are some early signs of recovery. The recent US China trade deal is expected to boost global sentiment and moderate the trade war.
The World Bank Group's report 'Global Economic Prospects' published in January 2020 estimated an annual growth rate of 5 per cent in GDP for India in FY20, increasing to 5.8 per cent in FY21. Indian growth has slowed on the back of a decrease in private consumption, tighter credit conditions and a decline in private investment due to the global manufacturing downturn and rising trade barriers. However, as per the MPC, the recent data by banks and financial institutions suggest some early recovery in investment activity which should augur well for the economy.
Indian power consumption per capita was only 1,181 kWh in 2019. It is expected that this will catch up with developed economies with similar social and economic conditions over time. India has moved up 14 positions to rank 63 globally, its highest ever, in the World Bank's annual Ease of Doing Business table in the latest World Bank, Doing Business 2020 Report. With universal household electrification nearly complete in the country, the latent power demand from rural India should get unblocked. The resultant impact is expected to be increased economic activity and industrialisation, contributing to increasing power demand. The sector is also likely to see increased consolidation with several stressed power assets available for acquisition.
Outlook
The recently announced Government budget of India has a far reaching impact for power sector of the country including billing and collection efficiency leading to improvement in the financial health of distribution companies. Apart from other measures, Government has proposed to close old thermal power plants which are around three decades old, in a phased manner. Based on data from the Central Electricity Authority of India, approximately 10 GW of thermal power plants could be impacted by this. This will help ease overcapacity in the sector to an extent.
We will maintain our strategy of maximising operational performance and deleveraging. Operationally, the Company is benefitting from the current level of coal prices and we expect this will allow us to demonstrate good profitability in FY20. We will continue to repay borrowings and increase value for our shareholders as debt reduces and profitability increases.
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