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Stock corner: ‘Buy’ on Torrent Power, target price at Rs 346

TPW has not tied up new gas supplies for its UnoSugen PPA (effective from July 1, 2019).

We met Torrent Power (TPW) to get an update on the business outlook. Key takeaways:

TPW has not tied up new gas supplies for its UnoSugen PPA (effective from July 1, 2019). Instead, the company is making use of gas tied up for Sugen (@$6.5/mmbtu till Dec’20) and buying from spot, as required. While the Unosugen PPA has a ceiling on the cost of supply (Rs. 5.6/kWh), current spot contract prices provide significant cushion TPW believes that the natural gas market would remain oversupplied, and thus it would increase sourcing from spot contracts.

According to our oil & gas sector analyst, the glut in global gas supply is likely to continue, given increasing gas supply from the US and Qatar and plateauing consumption in China along with possible lower imports from Japan.

TPW has also contracted storage-cum-regasification capacity of 1mtpa at Petronet LNG’s Dahej terminal for its imports. We note there is capacity in place to increase offtake, if required. Of the 17.5mtpa capacity at the Dahej terminal, only ~15.8 mtpa is contracted. Besides, another 5mtpa of capacity is scheduled to come up in Mundra. On the domestic front, TPW has participated in domestic gas allocation from the KG-D6 basin and won supply for 0.25mmscmd. Lower spot prices, along with sufficient tie-ups of gas contracts, provide visibility for UnoSugen PPA.

TPW’s recent renewable projects have faced issues SECI-III (500MW) was impacted by weak finances of an EPC contractor, land issues and is now past the original COD. SECI-V (115MW) has faced issues of land procurement. SECI-I project has been downsized to 50MW (from original 150MW).Such projects though are cushioned by bank guarantees.

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Source: Financial Express