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UPDATE - OPG Power confident as expects output to ramp up to 750MW in 2016 year

Last updated: 22:51 02 Mar 2015 AEDT, First published: 23:51 02 Mar 2015 AEDT

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-- additional broker comment --

India-focused power supplier OPG (LON:OPG) is confident on the trading outlook for the full year to end-March and expects output to ramp up to 750 megawatts (MW) during its 2016 year.

In a third quarter update to end-December, the group said the new 300MW Gujarat station is hooked up to the grid and expected to kick off operations in early March this year.

A second 150MW unit is expected to be synchronised during the next quarter. Ramp-up of the plant is now expected by the second quarter of 2016.

The 180 MW Chennai IV unit is in the final phase of commissioning and OPG expects to start operations by April 2015 it said.

Sales are to be to Tamil Nadu government-owned power firm TANGEDCO until September this year.

OPG runs three coal-fired power plants and output in the third quarter was 14% higher than the second quarter and 7% lower than in the previous year following the effect of planned shutdowns, the firm noted.

For that same reason, average PLF (plant load factor) across the three operating units for the nine months to December 2014 was 90%. Average tariffs have remained constant, it added.

"Trading for the current year continues to be good and the board remains confident about the outlook for the year. With commissioning activities across our projects now more or less complete, we expect our gross installed capacity to ramp up to 750 MW during FY16," it said.

Earlier in February, City broker Investec said the new plants will triple OPG's output and that it expected the new capacity to lead to a doubled profits by 2017, lower debts and the start of dividend payments.

Cash flow should also be sufficient to fund a move into other sources of power such as renewable.

Sales are predicted to rise from £110mln in the year to March 2014 to £222mln in the current year and £266mln in the years 2016/ 2017.

Over the same period, profits will rise from £21mln to £40.6mln and £46.3mln, the broker forecasts.

OPG has already stated its intention to pay a maiden dividend after the 750MW portfolio has bedded down.

Investec repeated its ‘buy’ recommendation and raised its price target to 150p from 140p.

Shore Capital added that completion of the power station assets will transform the group’s investor profile.

At present forecasts are very conservative given both operating metrics and the level of the rupee to sterling – which has been stronger than anticipated (currently at a rate of £1.00 = R95.3).

The new Indian government continues its economic reforms with a high priority given to infrastructure including power generation as set out in Saturday’s national budget.

Interest rates in India should continue to ease, benefiting OPG directly, but also sparking a higher rate of sustainable economic growth in the country. Buy says the broker.

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