SMART PROFIT LATEST REPORT ON POWER SECTOR

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Overview
After August 2011, the market is back to 18k level withstrong upswing
movement. Factoring the firm global cues with high inflowof investors
in market, Sensex is expected to continue this upward rally. Asper
research, power sector is a lucrative stream to invest with a long
termview.
With Government of India working to boost power sector, Coal India
will sign by March end agreements for supplyof fuel to power projects
commissioned up to December 2011.
The Government has forced SEB’sto increase power tariff by 25-30%.
This step of Government has provided hugerelief to companies in power
generation companies. According to sources, there maybe another price
hike of 20-25% within a period of 2 years.
For the 12th plan, Power companies capital expenditure isexpected to
be around Rs.100, 000-120,000 crore in which about 52,000 km
oftransmission lines, 70 sub-stations and transmission capacity of
1,36,000 MVA.
The Government of India being keen on infrastructuraldevelopment for
economic development, power is the leading sector to be
furtherdeveloped.
Going by the recent development, we expect Powergrid, NHPC,REC,
Neyveli Lignite to report healthy set of results on the back of
highercapitalization and higher capacity addition. We expect an
average post of 20-25%increase in revenue and profit Y-o-Y.


BUY NEYVELI LIGNITE CORPORATION LIMITED(513683)
CMP: 92
Target: 150 in 9 months
NLC is a government-ownedpower generating company having its own
lignite mining company, which is wholly owned by the Unionand State
Government (93.56%) and with remaining out of 6.44 %, 4.66% is with
Insurance companies. It isrecently announced as “Navratna” by
Government of India in April 2011. NLCNeyveli spreads over an area of
around 54 square km, comprisingNeyveli Township and temporary colonies
around 32 blocks. The companyruns the biggest open-pit lignite mines
in India and mines around 2.4 Croretonnes of lignite annually for
fuel, with an installed capacity of 2490 MW ofelectricity per annum.
NLC now elaborated its projectto Rajasthan also in mining as well as
thermal stations, 3 big mines alsosupplies a huge amount of sweet
water to Chennai. The Tamil Nadu electricityboard has a JV with the
Neyveli Lignite Corporation Ltd (NLC) for two projects– A 1000-MW coal-
based project at Tuticorin in southy Tamil Nadu at the cost ofRs.4000
crore and the Jayamkondam lignite power project at a cost of Rs.
5000crore for 1000 – MW power plant. The company has also planned to
develop cleancoal technologies like extraction of coal bed methane
(CBM) and Undergroundcoal gasification for which several steps have
been taken. The coal priced hasrisen, due to which Central Govt. has
forced SEB to increase Electricity Powertariff by 20%-25%, which will
directly benefit NLC for ownership of theirmines.
It reported a net profit of Rs 184.94 crore inthe October-December
quarter of FY12, a growth of 92.5% as compared to Rs 96.07crore in a
year ago quarter.
Net sales rose 20.3% to Rs 1,045.99 crore from Rs869.21 crore year-on-
year.
Neyveli Lignite is an open-cast mechanizedlignite mine. The Company
has 50 % joint venture with Tamil Nadu ElectricityBoard and its
announced its plans to invest about Rs.36,900 crore on powergeneration
and mining capacity augmentation by 2017. The plan also
includesdevelopment of power projects using other fuel feed. The
company is alsoplanning to invest Rs.40,200 crore to build power
plants in Tamil Nadu,Rajasthan and Uttar Pradesh.
Strong expansion & diversification plans to explore coal-based, wind
andsolar power generation projects will add on strength to the
cashbook.
We recommend ‘BUY’ on the stock at CMP Rs.92 with a target price of
Rs. 150 in 6 months

BUY POWER GRID CORPORATION OF INDIA(532898)
CMP: 113
Target: 150 in 9 months
Power Grid Corporation of India, the Central TransmissionUtility (CTU)
of the country under the Ministry of Power.
Central Transmission Utility - Navaratna PSU - Asset ofRs. 50352 Crs
as on March 31, 2011. World's Leading PowerTransmission Utility -
82,354 Ckt.Km line-135 Substations . Technology Leader inEHVAC & HVDC
Transmission.
Carries 51% of Generated Power AcrossCountry.
93,050 MVA Transformation Capacity
22400 MW (Approx) Interregional Capacity
Telecom NLD with 20733 Km Optical Fiber Network & Internet
ServiceProvider
Net profitafter tax rose to Rs 809 crore in the October-December
quarter of FY12, agrowth of 37% as compared to Rs 591 crore in a year
ago quarter.
Net salesrose 20 % to Rs 2,576 crore from Rs 2,145 crore year-on-year.
Capital expenditure for FY12 is expected to be around Rs16700 crore.
For the 12th plan, company’s capital expenditure is expected to be
around Rs 100,000-120,000 crorein which about 52,000 km of
transmission lines, 70 sub-stations andtransmission capacity of
1,36,000 MVA are to be added. The management hasguided for
capitalization of Rs 10,000 crore in FY12. Higher capitalizationshould
aid top line growth. Company has more than 50% of the market share
ofthe transmission sector and this is expected to increase.
Due to Power Grid’s robust long-term business outlook,valuations and
on a strong fundamental basis, we have a ‘BUY’ rating on thestock at
CMP of Rs 113 with target price of Rs.150 in 9 months.
BUY RURAL ELECTRIFICATION CORPORATION LIMITED (REC)(532955)
CMP: 216
Target: 300
REC, under Ministry of Power, wasincorporated on July 25, 1969 under
the Companies Act 1956. REC a listed PublicSector Enterprise
Government of India with a net worth of Rs. 12,784 Crore ason
31.03.11.
REC provides loan assistance toSEBs/State Power Utilities for
investments in rural electrification schemesthrough its Corporate
Office located at New Delhi and 17 field units (ProjectOffices), which
are located in most of the States.
The company has been rated amongthe top 500 Global Financial Services
brands for 2010 by UK-based plc BrandFinance. REC is also among the
Forbes Global 2000 companies for 2010.
Netprofit after tax rose to Rs 769.51 crore in the October-December
quarter ofFY12, as compared to Rs 664.09 crore in a year ago quarter.
Net sales roseto Rs 2,663.68 crore from Rs 2,142.33 crore year-on-
year.
With a strong sanctions pipeline(INR1.6 trillion), loan growth is
likely to be healthy at 22% CAGR overFY11-13. Loan book grew 24% Y-o-Y
and 5% Q-o-Q to INR858 billion.
We have a ‘BUY’ rating on thestock at CMP of Rs.216 due to REC’s
robust long-term business outlook andvaluations considering compounded
earnings growth of 25% and average return onequity (RoE) of 22% over
2011-12.

BUY NATIONAL HYDRO POWER CORPORATION (533098)
CMP:21
Target: 40 in 6 months
NationalHydro Power Corporation, an entity of Government of India, is
country’s largesthydro power producer.
NHPC is currently having an installed capacity of more than 5,300 MW
with14 operational power stations and has a cash surplus of over Rs.
4,000 crore.
National Hydroelectric Power Corporation (NHPC) hasreported a net
profit of Rs 966 crore in the second quarter of FY12, a growthof 40%
as compared to Rs 690 crore in the corresponding quarter of last
fiscal.
Thestate-run major is engaged in the construction of 10 projects at
variouslocations in the country, going to have an additional capacity
of 4,502 MW. Itis planning to develop two hydro projects in Myanmar.
Itplans to increase the capacity to over 10,000 MW by end of 2012.
Thecoal price has risen, which will force to increase in power price
by 20% to 25%.This will further boost the profit margin of NHPC to a
large extent.
Spanning on Government’s increasing emphasis on hydro power and
NHPC’sstrong hold, we recommend a BUY on NHPC at CMP of Rs 21, with
atarget of Rs.40 in 6 months.

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compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
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