No. of Recommendations: 6
OPG Power Ventures (OPG)

My Summary is at the bottom.

OPG owns, manages and develops power generation plants in India.

The Opportunity
India’s economic growth rates of c 8% per annum look set to continue.
Demand for power outstrips economic growth rates due to persistent, structural supply - demand gap which will take many years to plug.
Steady programme of legislation and other measures from Government to deregulate and encourage major participation in power industry by private providers.
Outlook for pricing and therefore industry margins given this mix of fundamental factors is sustainably strong.

They say:
The power generation industry in India has very exciting prospects underpinned by extremely favourable economic fundamentals of demand growth and supply gap-as described in the next subtab ‘Indian Power Sector’. OPG has chosen a focused and incremental strategy in exploiting the opportunities in this industry.
OPG is one of the pioneers in the development of the Group Captive Power Plant model whereby generators are able to supply assured power to corporate and industrial customers at tariffs agreed between themselves and without reference to regulators. In 2004, OPG set up such a plant in Mayavaram in Tamil Nadu. The success and profitability of this plant has provided the template for the development of more plants and the exciting growth strategy of the Group. Moreover, as the landscape of the power sector in India continues to evolve, OPG has been able to play an increasing role in the growing spot and merchant power markets.
OPG’s Goal is to build and achieve 1250 MW of power generation capacity by 2015
OPG is a young company with a clear vision and has set out a road map of how the Goal for 2015 will be reached. Moreover, its risk averse, incremental approach will ensure that the benefits of growth will be captured for shareholders. Development is focussed in the industrialised states of India and the financing of the growth has been constructed on the basis that at least 99% of the economic interest of all the new plants accrues to OPG shareholders.
OPG looks forward to playing a full role in the further development of the power generation industry in India, in order to secure further growth and benefits for shareholders. In making future choices, OPG will remain committed to its strategy of focussing on profitable areas of industrial and merchant power-related demand. Moreover, OPG will continue to operate as an efficient, low-cost producer maintaining the highest technical standards as well as exceeding the norms prescribed by environmental regulations.

They joined AIM at 60p a share on 30 May 2008.

Website: www.opgpower.com with news for investors, annual reports etc.

Figures
Share price for comp 35p, currently 38p

Mkt Cap: £133m

52 week low/high: 35p/105p

Key Dates
Final Results July 2012
AGM Sept 2012
Half Year Results Dec 2012

Directors Dealings
Martin Gatto (NED) bought 10000@36.9p 12/1/12
Mike Grasby (NED) bought 5000@37p 21/12/11

Major Shareholders
Gita Investments Limited	       43.54%
M & G Investment Management Ltd 10.04%
Audley Capital Advisors LLP 8.66%
Legal & General Investment Ltd (UK) 6.09%
Gita Power Inc 4.84%
FOUR Capital Partners Limited 4.18%


Director's Remuneration
Name of Directors            2011     2010
Arvind Gupta (CEO) 169,109 157,480
V Narayan Swami (FD) 50,734 47,244
Martin Gatto (Senior NED) 25,000 25,000
Mike Grasby (NED) 25,000 25,000
MC Gupta (Chairman) 25,000 25,000
Ravi Gupta (NED) 25,000 25,000
Total 319,843 304,724


Gita Investments is controlled by the Gupta family, Arvind and Ravi are brothers but MC Gupta (Chairman) is not related.


Historic Figures
Year Ending  Revenue(£m) Pre-tax(£m) EPS    P/E  PEG  EPS Grth.  Div  Yield
31-Mar-08 n/a 0.58 0.22p n/a n/a n/a n/a 0.0%
31-Mar-09 7.31 6.33 1.24p 23.4 0.1 +462% n/a 0.0%
31-Mar-10 11.52 5.45 0.32p 198.1 n/a -74% n/a 0.0%
31-Mar-11 33.15 11.16 2.13p 44.2 0.1 +559% n/a 0.0%


Forecasts
Year Ending Revenue(£m)  Pre-tax(£m) EPS    P/E  PEG  EPS Grth.  Div  Yield
31-Mar-12 51.77 9.34 2.09p 17.9 n/a -2% n/a 0.0%
31-Mar-13 70.58 12.60 2.71p 13.8 0.5 +30% n/a 0.0%
31-Mar-14 283.90 78.70 16.60p 2.3 0.0 +512% n/a 0.0%



In Feb 2011 they raised £60m at 93p to finance additional generating capapcity in India.

Recent Results
Half year results came out on 14th Dec 2011

Financial Highlights

· Revenue £23.85m up 166%
· EBITDA £6.34m up 34%
· Profit attributable to shareholders up 35% and EPS up 11% (on a higher capital base)
· Average tariff achieved in the period of Rs 4.72/KWh (30 Sep 2010: Rs 4.80/KWh)
· Contract signed for 53 MW at Rs 5.05/Kwh for period October 2011 to May 2012
· Cash & cash equivalents of £66.84m; long- term borrowings of £62.78m

Operational Highlights

· No coal shortages experienced during the period
· Delivered power up 190% on comparative period in 2011 and 8.5% on preceding six months
· 77 MW Chennai I at average 91% PLF delivering 15% more units than preceding six months
· Accelerated delivery of 77 MW Chennai II project - expected in Q2 2012
· 80 MW Chennai IV brownfield project - construction and equipment delivery commenced
· Coastal Regulatory Zone (CRZ) environmental clearance for 300 MW Gujarat project

Director speak:
Mr M C Gupta, Chairman said: "I'm pleased to report that OPG has continued its expansion programme and announced further growth during this period that keeps us on track to achieve our targeted capacity of 1,250 MW by 2015. Our current trading environment remains challenging but during the half year OPG demonstrated the resilience and flexibility of our assets and our operating model, both of which I referred to in the 2011 Annual Report. I commend the strength of our management team in optimising the performance of our flagship asset, 77 MW Chennai I, and in doing so, working hard to restrict the impact of current external headwinds. Concurrently, the focus has been maintained on our goal of delivering 1,250 MW of profitable generation capacity and as much of these growth projects are planned to be replicas of Chennai I, the optimisation of that plant strengthens OPG's long term prospects further.

"We are confident about our ability to maintain our operating margins through the remainder of the year. Most importantly, with our growth projects on track and the fundamentals of the power sector in India remaining intact, I believe we continue to be well placed for the longer term. This is particularly so given the positive structural developments now taking place in our sector such as those relating to a move to more realistic utility power tariffs."


Despite these positive words the share price fell from 53p to 38p on release of these results.

Gross margins had dropped from 48% to 34% and net margins from 37% to 12.7%.

Electricity tariffs had fallen but are now improving, avg last yr Rs4.95 per kWh, avg this year Rs4.90, but last agreement signed was at Rs5.05.

There were coal supply problems which meant the price of coal (ie. their raw materials) had gone up.

Interest rates had increased from 13% to 15.5% in response to rising inflation rates. However interest rates are expected to start to come down this year as inflation is easing: www.bbc.co.uk/news/business-16381122

The Rupee had devalued against the Pound.

Forecasts were slashed from 3.1p to 2.1p (2012) and 3.4p to 2.7p (2013).


So...
The last results missed forecasts due to a number of factors highlighted above but i think the company has suffered short term problems, long term demand outstrips supply, indeed 'Power deficits are expected to remain at 10-12% in the medium term due to delays in the scheduled capacity to be commissioned and OPG is well positioned to benefit by bringing additional capacity in the next 24 months.'

There will be state allowed price increases in April which will help.

The company needs to instill some confidence into the market with their next numbers due in July. They need to underpromise and overdeliver.

IF (and they are confident about doing so) they can reach their target of producing 1250MW by 2015 and meet projected forecasts then this company is cheap as chips, miss and the valuation is about fair.

Investors Chronicle said in early Jan that 'despite the demanding (current) PE ratio, the shares are good long term value'.

There's an interesting IC article on Indian companiese here:
www.investorschronicle.co.uk/2012/01/04/shares/news-and-anal...


For more reading Eddie1980 is the voice of reason on ADVFNs OPG board.

I have a small (underwater) holding and am thinking about increasing.

Hywel
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