Opg Power Regulatory News (OPG)

20 June 2023 

OPG Power Ventures plc

("OPG", the "Group" or the "Company")

Trading update for the year ended 31 March 2023

OPG Power Ventures plc (AIM: OPG), the developer and operator of power generation plants in India, announces a trading update in respect of the full year ended 31 March 2023 ("FY23").

Summary

For the year ended 31 March 2023 and to date:

· Total generation in FY23 was 1.5 billion units (FY22: 1.8 billion units). The reduction in generation was primarily due to high coal prices and the Company's strategy to focus on profitable operations, resulting in revenues, EBITDA and PAT in line with FY23 market expectations.

· Plant Load Factor ("PLF") was 42.1 per cent in FY23, compared to 51.5 per cent in FY22.

· Average tariff for FY23 was Rs. 8.71 (FY22: Rs. 5.82) per kwh.

· During FY23, the Company repaid debt totalling Rs.1.72 billion (equivalent to £17 million based on an exchange rate of ₹101.44/£1).

· PLF for April 2023 was 74.6 per cent (March 2023 PLF: was 70.7 per cent).

· Non-Convertible Debentures (NCDs) totalling Rs. 2 billion were repaid in May 2023

Indian Economy Update

· India's electricity demand in the financial year 2022-23 increased by 9.5 per cent compared to the previous financial year, a record high in the past decade, per data released by the Central Electricity Authority (CEA).

· In May 2023, India's daily peak power demand reached 221 gigawatts (GW) - the highest daily peak ever in the history of the country.

· To de-risk the country from international coal price increases and to make the country self- sufficient in terms of energy security, India has increased coal production in FY23 by 14.62 per cent.

· Over the next two years, it is expected that there will be major capacity expansion along with commercial coal mining. The country has set the target of producing one billion tons and is expected to become a net exporter of thermal coal by FY 2025-26.

· The Russia and Ukraine conflict, as well as the lasting effects of the COVID-19 pandemic, have impacted economic growth across the globe. Demand dropped while sanctions on Russia led to unprecedented increases in gas & power prices, fuelling inflation which remains a concern. In addition, central banks raised interest rates, and this further eroded demand.

· The International Monetary Fund "IMF" has reduced its growth projections for the global economy in 2023, predicting a growth rate of 2.8 per cent and 3 per cent in 2024, both down 10 basis points from its January 2023 forecasts.

· The IMF has revised its forecast for India's GDP growth forecast to 5.9 per cent for FY 2023-24 and 6.3 per cent for FY 2024-25.

· As per the latest World Economic Outlook figures released by the IMF, India remains the fastest-growing economy in the world, despite a drop in growth rate projections from 6.8 per cent in 2022 to 5.9 per cent in 2023.

· The Indian economy has shown resilience amidst these external headwinds and a weakening global economic scenario. For the last few years, the Indian government has focused on infrastructure development and its capital expenditure plan continues to reflect this. Capex spending by the Government has steadily increased in the last few years and is expected to be the highest to date in FY24.

· The private sector in India has also seen a capex revival with credit growth being at a four-year high, as the balance sheets of both banks and corporates remain healthy.

 N. Kumar, Non Executive Chairman commented

"I congratulate the team in successfully navigating FY23 in the wake of high coal prices. The Company zeroed in on profitable operations and delivered an exceptional performance and cash generation in what may be termed as 'a difficult year'. With the softening of global coal demand and increase in coal production, most of the global benchmarks are now moving closer to their long term averages signifying return to rationality in the markets.

 OPG has repaid its entire project debt in FY23 as well as the NCDs availed in June 2020.

With revenues, EBITDA and PAT in line with FY23 market expectations, the Company can now focus upon enhancing shareholder value."

For further information, please visit www.opgpower.com or contact:

Enhancing shareholders' value

In 2018, the Board took the conscious decision to focus on profitable, long-life assets in Chennai, and to prioritise deleveraging as a method to grow shareholders' equity. With reduction in debt, significant portion of free cash flows will be earmarked to enhance shareholders' value and to capitalize on future growth opportunities. 

As at 31 March 2023, total borrowings were £32.54 million comprising term loans and NCDs of £30.6 million and working capital loans of £1.9 million. This represents a 25% reduction in gross debt from £43.3 million at 31 March 2022.

Further, the Company has repaid NCDs totaling Rs. 2 billion in May 2023. The repayment has been financed by a mix of internal accruals and new debt comprising both, term loans and a new tranche of NCDs. This refinancing pares down the debt as well as elongates the tenure to five years thereby providing more flexibility in managing cash flows.

Group Operations Summary

· Total Generation in FY23, at the Chennai plant was 1.5 billion units. The generation was lower due to the Company's increased focus on profitable operations in light of substantial increases in international coal prices.

· The average tariff realised in FY23 improved by 49.7 per cent as the Company focused solely on supply of electricity under profitable contracts.

Coal Prices

· Coal prices surged sharply to over US$150/Ton in Oct'21 and remained at higher levels largely due to Russia's invasion of Ukraine, the ensuing gas crisis in Europe and higher demand from both China and India. The prices have come down to below US$75/Ton and are expected to soften further.

· The Company is consciously focusing on increased consumption of domestic coal and participating in various auctions to mitigate the increase in the weighted average landed price of coal. The weighted average landed price of coal was Rs. 7,811/Ton in FY23 as compared to Rs. 5,461/Ton for FY22.

Power Sector

· India's per capita electric consumption in FY22 was 1,255 kWh which is one third of the global average. Significant scope of growth exists in energy consumption and generation in the country and thermal power will remain the backbone of this growth.

· India's energy demand in the financial year 2022-23 increased by 9.5 per cent compared to the previous financial year due to the rebound of economic activities after COVID-19 lockdowns eased, leading to increased consumption. The Central Electricity Authority (CEA) has projected a peak power demand of 335 GW and 2.28 trillion units of electricity for the year 2029-30. The projected peak demand for FY30 is 45 per cent higher than the about 230 GW estimate for the current financial year.

· An additional 16,204.5 MW of coal-based power will be required to meet the electricity demand in 2029-30 in addition to the 26,900 MW currently under construction.

Environmental, Social and Governance ("ESG") strategy development

OPG continues to develop its ESG strategy which, among other matters, will include objectives to reduce its carbon footprint. As part of this strategy, the Company is evaluating various options to increase its plant efficiency and to establish joint ventures to roll out various energy transition technologies including fuel substitution for power generation. These initiatives will ensure that OPG delivers year-on-year improvements to reach the Company's emissions reduction targets in the medium and longer-term and should generate attractive returns for shareholders.

During FY23, Company has replaced burners in two units to meet the environmental norms in terms of controlling Nitrogen Oxide (NOX) emissions, well ahead of the required deadline announced by the Government of India.

Outlook

Despite the disruption caused by high coal prices and as a result of our strategy of maximising operational performance and deleveraging, we expect that the Company will meet FY23 market expectations for revenue, EBITDA and PAT.

Profitable generation and continued leveraging of opportunities have significantly strengthened the Company's balance sheet and its liquidity position.

Notwithstanding the volatility in coal prices, the Company's medium-term and long-term fundamentals remain unchanged with strong cash flows and a reduction in debt enabling the achievement of the Company's long-term profitable business model and sustainable returns to shareholders.