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June 28, 2013

Rating matrix
Sector Rating Top Picks : : Neutral NTPC Power Grid

Power sector
CCEA decision to lead to higher tariff
20055

Gas capacity (Sector wise)

25000 20000 MW 15000 10000 5000 0 Central State Private Total 7065 5646 7344

The Cabinet Committee on Economic Affairs (CCEA) on June 27, 2013, accepted the Rangarajan Committee recommendations on gas price and decided to increase the price of domestically produced gas from $4.2/mmbtu to $8.4/mmbtu with effect from April 1, 2014. The pricing is based on the formula submitted by the Rangarajan committee recommendations and the review of the same will happen on a quarterly basis. However, the government has hinted (in the media) that gas will be supplied to the power and fertiliser sectors at a discounted rate and the prices of the same are yet to be discovered. The power sector consumes ~40% of the total gas supplies in the country and is expected to remain the largest consumer for the next five years. India has a total gas based generation capacity of 20.4 GW (9% of total installed capacity) and is currently operating at below 30% PLF due to gas supply constraints. Power plants get domestic gas at $4.2/mmbtu. However, many plants rely on expensive RLNG available at $13$15/mmbtu due to declining domestic gas production. At the rate of $4.2/mmbtu, the tariff for gas-based power plants comes to ~| 3.5-3.8 while a one dollar hike will lead to ~| 0.60 hike in the variable cost. Our stance The decision to hike domestic gas price will raise the power tariff, which may lead to further back downs by SEBs whose purchasing power has been impacted by their ailing financial condition However, this will not have a major impact on PSUs like NTPC whose fuel risk is pass through and gas accounts for only 11% of its capacity. Also, SEB back down will not have any impact as the companys incentives and entire cost recovery is based on availability factor Capacity of private players tied to KGD6 volumes will be more impacted via the ramp up/down in gas production in the medium term We believe gas based plants operating on a merchant basis would face a major impact as they would find it difficult to arrange for the offtake, (due to increased tariff) making the project unviable

NTPC gas supply composition

KG D6 12%

APM/PMT 74%

RLNG 10% Non APMGas 4%

Analysts name
Chirag Shah shah.chirag@icicisecurities.com Anuj Upadhayay anuj.upadhyay@icicisecurities.com

ANALYST CERTIFICATION
We /I, Chirag Shah MBA, Anuj Upadhayay MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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