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OPG Power eyeing further expansion to over 2,000Mw in India

Indian power provider OPG is on track to reach its 750 Mw production in June this year and is eyeing further capacity expansion to over 2,000 Mw, it emerged.


Indian power provider OPG (LON:OPG) is on track to reach its 750 megawatt (Mw) production in June this year and is eyeing further capacity expansion to over 2,000 Mw, it emerged.

Broker Sanlam revealed the news in a note, following a meeting with management this week.

The broker also revealed that OPG was hoping to start paying a dividend as soon as possible.

As revealed this month, the first 150 Mw at the Gujarat station has been commissioned and the second 150Mw, bringing the total output to 300Mw, is expected to be completed by the end of June.

The Chennai IV unit is in the final phase of commissioning and expected to kick off production at the end of this month, bringing up the 750Mw goal.

However, analyst Mark Cartlich revealed the firm also said it has the land to expand further to over 2,000 MW, with another 600 MW possible in Gujarat and 750 MW in Chennai. 

"The cost would be approximately US$1-1.1m per MW, so would be a long-term programme requiring significant further funding, but it provides an idea of the potential for the group," he said.

Moreover, OPG also has the possibility to develop up to 300 Mw of renewable power from a mixture of wind and solar production.

Demand for electricity per head of population in India is rising strongly and supply remains constrained.

However, the outlook in India is looking brighter, due to, among other factors, Prime Minister Modi’s economic stance.

In February, City firm Investec noted: "OPG is likely to ‘grow with India’ and consider investments across a broad technology spectrum from fossil-fuel fired power plants to renewables.

“We see a strong rationale for OPG to participate in this process. 

"It would involve OPG gradually becoming a multi-technology electricity generator, with diversification benefits in terms of operations," it told clients.

Sanlam analyst Cartlich added today that the OPG team had been "cautious" on the timing of the first dividend payment, but hinted it could be earlier than the 2017 consensus forecast. 

"The intention is to start paying as soon as possible so that the company becomes an income play, combined with its growth story," he said. 

Net debt to equity is expected to be 60% at year-end, so it would be perfectly possible for the group to start paying sooner than then, as no further capacity expansions have been announced, he added.

OPG runs three coal-fired power plants in India and earlier this month said trading had been in line with expectations with average load factors of 91% at its stations.

Average tariffs also increased, while interest costs were reduced due to lower Indian base rates.

OPG added that to meet its growth targets, it expects coal-fired power to remain the largest contributor to India's energy needs for some time to come.

Sanlam reckons the firm's growth profile is not priced into the current share level of 88p each.

Quick facts: OPG Power Ventures PLC

Price: 12.5 GBX

Market: AIM
Market Cap: £50.09 m

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