SCORES – SEBI’s new initiative to track complaints

SEBI’s latest initiative to live is SCORES‘ (SEBI COmplaint REdress System) to track shareholder grievances against listed companies and SEBI registered intermediaries.

SEBI intends this system to be a second level of redressal system, the first being the company / intermediary itself.

An investor needs to register with a valid email id on this website, and then can complaint against any listed company or SEBI registered intermediary, like brokers, depositories / depository participants, mutual funds, merchant bankers, etc.

The website also allows a complainant to upload pdf documents (up to 1MB size) as supporting documents.

The website also has separate sections for sending reminders and checking the status of a complaint.

This, if used, should herald a new era of investor governance and ensure listed companies and intermediaries take investor complaints more seriously.

Draft Regulations on Power Trading Margins

Event: The CERC (Central Electricity Regulatory Authority) earlier today released draft regulations for power trading margins (open for public comments till 10th Nov.,2009).

Impact: We expect this to have a neutral to positive impact on all power trading companies.
The key take-away from these regulations is increase in margins for power traders, from the present flat rate of 4 paise per unit to 1.5% of the purchase price (subject to a maximum of 7 paise per unit – if sale price is more than Rs3 per unit, and maximum of 4 paise per unit – if sale price is less or equal to Rs3 per unit). These regulations are applicable for short-term trades, either through bi-lateral agreements or through any of the power exchanges.

PTC India (Not Rated)
We believe that these regulations, if finalised, would be positive for the company. PTC India is the largest power trader in India with a huge ~40% share. The company derives 44% of its volumes from short-term power trades (FY09: short term power traded volume: 6,064 mn units; total power traded volume is 13,825 mn units). The average selling price for the company was Rs4.60 per unit in FY09, and the average margin was 3.66 paise per unit. Given the company’s revenue and volume composition, we believe that these new regualations can only help the company increase its profitability as all the increases in the regulated margins would flow directly to the bottom-line.

Note: Our assumptions include increase in average trading margins from 3.66 paise per unit to 6.0 paise per unit, and a 20% growth in volumes. In Q1FY10 PTC India’s power traded volumes were up 56% YoY to 4,204 mn units, with average realisation at Rs5.64 per unit and margin at 5.21 paise / unit.

PTC current trades at ~25x the FY11 consensus EPS of Rs4.22. We expect these estimates to be upgraded by at least 60%-70%, indicating that even after the today’s run-up in the stock price, PTC India trades at ~14.8x FY11 estimated EPS.

The other players that could benefit include Tata Power.

CERC’s Renewable Energy Tariff Regulations to boost sector

In line with the objective to attract new investments in the power sector, and specifically, to promote renewable energy, the CERC, which regulates inter-state power sector, announced new tariff regulations for grid-connected renewable energy power projects. These regulations assure developers of a higher return on the equity invested and indirect incentives if the developer can contain capital and operational costs.
In India, only 8.7% of the total grid-connected power capacity is attributable to the renewable energy segment. Thus at an installed base of 13,242MW, this segment constitutes merely 21% of the potential 62,853MW from only small hydro and wind power. The potential of solar, biomass and waste-based power projects is estimated to be a further 625,500MW, of which solar-based projects alone contribute 600,000MW. Thus, the solar segment alone has the potential to fuel India’s entire present electricity requirement.
We believe that the overriding philosophy of these new regulations is to promote power generation from renewable energy sources by giving a preferential/differential tariff to such projects. This, we believe, will go a long way to help achieve the target of 15% of total generation from renewable energy sources by 2020, a target set under the National Action Plan on Climate Change.

Full Report is available here.

CERC caps power exchange tariff rates at Rs8 per unit and allows new weekly contracts

Since CERC’s order to cap to the day-ahead power tariffs, these have been averaged to Rs2.91 per unit. On Friday evening, CERC issued its final order in this matter and has tightened the price cap from Rs11 per unit in its draft order to Rs8 per unit now. The present order is valid for a period of 45 days.
The change in pricing for the day-ahead tariffs is shown in the graph above. Since the earlier order, the highest price has been Rs10.5 per unit, and this too was on the day after the order. If this is excluded, the highest tariff was Rs6.00 per unit. We believe that this clearly highlights the effectiveness of CERC in curbing the abnormal tariffs at which power was being traded.

Given that since the draft order power traded has been at a maximum rate of Rs6.00 per unit, we believe that this final order capping the day-ahead power tariffs at Rs8 per unit for a period of 45 days would not have any impact on the stock prices of companies selling merchant power. The companies dealing in merchant power are the likes of GMR Infra, JSW Steel, JSPL, Nava Bharat, etc. We reiterate our sell recommendation on GMR Infra with a target price of Rs110. We do not expect power trading companies, like PTC India, to be impacted by this order as their margins are independent of this order, and capped at 4 paise / unit, irrespective of the power tariff or the volume.

In a related move, the CERC has permitted the power exchanges to introduce new contracts. The IEX is hence introducing the following contracts from 15-Sep-09:

  • Region-wise intra-day contracts: are contracts for delivery of power on the same day. These contracts would be avaiable on a hourly-basis from 19:00 hours to 24:00 hours only. Thus, only six hourly contracts would be available in this product.
  • Regional day-ahead contingency contracts: These are similar to the existing day-ahead product, except that these would be traded at the end of the day (between 3:00 PM and 5:00PM). We believe that this would help those buyers / sellers who otherwise were not able to buy / sell during the normal segment, or received late instructions from their PPA counter-party with regard to power supply the next day.
  • Region-wise daily contracts: These are week-ahead contracts for supply of daily/hourly power. These contracts are available for the following blocks: (a) 8-hours night period; (b) 11-hour day period; (c) 5-hour evening peak; and (d) full day or 24-hour period.
  • Region-wise weekly contracts: There would be contracts specifc to each region (north, south, east, west and north-east). In addition, these would be available in four time blocks: (a) 8-hours night period; (b) 11-hour day period; (c) 5-hour evening peak period; and (d) full day or 24-hour period.

It should be noted that all these new contracts are also based on actual delivery and cannot be settled in cash.

To us the biggest take-away is that the regulator is open to introduce longer duration contracts in power trading. We believe that more longer duration contracts would be permitted sooner rather than later ensuring a deeper power trading market.

CERC caps power exchange tariff rates at Rs11 per unit

CERC has, through a draft order, annouced that power tariff for all day-ahead transactions is capped at Rs11 per unit (kWh). This cap is applicable to all merchant power transactions whether through the power exchanges or on a bi-lateral basis. The CERC has also stated that this order is valid for the next 45 days, during which time (on 8th Sept, 2009) it would hold a public hearing. The commission would review it’s decision after these 45 days.

As of now, the power exchanges trade only in the day-ahead segment, all transactions for longer durations are on a bi-lateral basis. We do not rule out CERC capping these rates in the near future.

Since the beginning of the current water year (June 2009 to May 2010) the power tariff on the IEX has been higher than Rs11 / kWh on 20 days, with the max price reaching Rs17 / kWh on 13th Aug., 2009. Similarly, in the current water year there have been 9 days when the average price has been higher than Rs11 / kWh. Today the power day-ahead rates on the IEX was Rs3 / kWh to Rs12 / kWh.

As mentioned in our earlier reports (see below) this would be negative for players with large merchant / captive capacities. Further, we do not expect this to have any impact on power traders such as PTC as their margins are capped at 4 p/kWh, irrespective of the purchase / sale price of power.

We expect this to be negative for GMR Infra which sells merchant power from its Tanvir Bawi power plant. The other stocks which could be negatively impacted are JPSL, JSW Steel, Nava Bharat, etc.

Links: (1) Draft Order, (2) Public Notice