OPG Power Ventures : 3Q FY20 Trading Update

RNS Number : 5484C OPG Power Ventures plc 11 February 2020

11 February 2020

OPG Power Ventures plc

("OPG", the "Group" or the "Company")

Trading update for Nine Months of FY20

Summary

For the nine months to 31 December 2019:

• Total generation of 2.09 billion units (2.15 billion units for nine months FY19);
• Plant Load Factor ("PLF") at Chennai was 77% (79% for nine months FY19);
• Average tariff for nine months FY20 was Rs 5.67 (Rs 5.33 for nine months FY 19);
• £13.3m term loan principal repayment, representing 3.3 pence per share added in value to shareholders' equity;
• Gross debt reduced by 22 per cent to £62.5m (£80.4m at 31 March 2019);
• FY19 full year scrip dividend of 0.6p per share (FY18: 1p per share) paid in January 2020.

Arvind Gupta, Executive Chairman, commented:

"We are pleased to report another strong opera onal performance for the first nine months of FY20 and we expect to meet market profit expectations for our full FY20 results."

For further information, please visit www.opgpower.comor contact:

OPG Power Ventures PLC

[phone]

Arvind Gupta / Dmitri Tsvetkov

Cenkos Securities (Nominated Adviser & Broker)

Russell Cook / Stephen Keys

[phone]

Tavistock (Financial PR)

[phone]

Simon Hudson / Barney Hayward / Nick Elwes

Introduction

In 2018, the Board took the decision to focus on our profitable, long-life assets in Chennai, and to priori se deleveraging to enhance and increase the value to shareholders' equity. Given the strong cash flows generated by the Chennai plant we remain on target to deliver a debt free business by the end of 2023 with free cash flows therea er providing significant returns to our shareholders.

The increase in equity value, since the adoption of this strategy is:

			Expected	Expected	Expected
	FY18 - FY19	9m FY20*	Q4 FY20*	FY 20*	FY21*
Term loan principal	£42.9m	£13.3m	£4.4m	£17.7m	£16.7m
repayments
Addition to shareholders	11.1p	3.3p	1.1p	4.4p	4.2p
value as a result of term
loan principal repayments
(per share)

*Based upon INR/GBP closing exchange rate at 31 December 2019 of 93.49 and 400.7 m of Ordinary Shares in issue

The Board believes that the strategy of maintaining opera onal excellence and the paying down of borrowings is for the clear long term benefit of all our stakeholders.

Operations Summary

Chennai - Total generation maintained at 2.09 billion kWh and PLF of 77%

	Nine	Nine	FY
	Months	Months
	31 Mar 2019
	FY 20	FY 19
Generation (million kWh)
414 MW	1,889	1,969	2,471
Additional "deemed" offtake at Chennai	204	176	234

Total Generation (MUe)1	2,093	2,145	2,705
Reported Average PLF (%)
414 MW	77%	79%	75%
Average Tariff Realized (Rs)
414 MW	5.67	5.33	5.41

Note:

1 MU / Mue - millions units or kWh of equivalent power

In Q3 FY20, India's power demand growth witnessed a decline of 6.2% YoY, compared to growth of 6.7% in Q3 FY19, primarily attributable to subdued economic activity in the country.

In spite of the subdued economic ac vity and a decline in thermal genera on growth of 11.3% in the country, total genera on at the Chennai plant, excluding deemed genera on, in the nine months of FY20 was 1.89 billion units, 4 per cent less than in the nine months of FY19. This decrease in genera on was primarily due to decreased demand by automobile and steelmaking industrial customers as Indian economic growth moderated slightly. Average tariffs realised in the period were Rs 5.67 per kWh and for FY20 the tariff realiza on is expected to be similar (nine months of FY19: Rs5.33; FY19: Rs5.41 per kWh). The higher tariff realisa on is primarily due to an increase of tariff in 2018-19, the full impact of which will be reflected in FY 2019-20.

Focus on Maximising Asset Performance and Deleveraging

The average landed cost of coal was £49.0 (Rs 4,363) per tonne in the period, (£49.3 or Rs 4,517 per tonne in FY19). This reduction in coal cost is primarily due to moderation in international coal prices.

As at 31 December 2019, total borrowings were £62.5 million, including term loans of £53.9 million and working capital loans of £8.6 million. The remainder of the Chennai plant term loans are scheduled to be fully repaid by Unit II and III in calendar year 2022 and Unit IV in Q3 23.

Scrip Dividend and Issue of Equity

As previously reported, the final FY19 scrip dividend of 0.6 pence per share was paid in January 2020 and a total of 12,823,311 new Ordinary Shares were allo ed by the Company to shareholders. Following the issue of the scrip shares the Company has 400,733,511 Ordinary Shares in issue.

62 MW Karnataka Solar projects

All our Karnataka solar projects situated north of Bengaluru are opera onal and have met all cri cal opera ng metrics. Currently the projects are receiving a tariff of Rs 4.36 per kWh. We expect the Capacity Utilisation Factor to be 17-20 per cent during FY20. As previously announced, the Board has decided to focus on the core thermal power plants business in Chennai and the Karnataka solar projects remain in a disposal process.

The Indian Economy and Power Sector

As per the Monetary Policy Commi ee of India (MPC), global economic ac vity remained subdued over the last quarter, though there are some early signs of recovery. The recent US China trade deal is expected to boost global sentiment and moderate the trade war.

The World Bank Group's report 'Global Economic Prospects' published in January 2020es mated an annual growth rate of 5 per cent in GDP for India in FY20, increasing to 5.8 per cent in FY21. Indian growth has slowed on the back of a decrease in private consump on, ghter credit condi ons and a decline in private investment due to the global manufacturing downturn and rising trade barriers. However, as per the MPC, the recent data by banks and financial institutions suggest some early recovery in investment activity which should augur well for the economy.

Indian power consump on per capita was only 1,181 kWh in 2019. It is expected that this will catch up with developed economies with similar social and economic condi ons over me. India has moved up 14 posi ons to rank 63 globally, its highest ever, in the World Bank's annual Ease of Doing Business table in the latest World Bank, Doing Business 2020 Report. With universal household electrifica on nearly complete in the country, the latent power demand from rural India should get unblocked. The resultant impact is expected to be increased economic ac vity and industrialisa on, contribu ng to increasing power demand. The sector is also likely to see increased consolida on with several stressed power assets available for acquisition.

Outlook

The recently announced Government budget of India has a far reaching impact for power sector of the country including billing and collec on efficiency leading to improvement in the financial health of distribu on companies. Apart from other measures, Government has proposed to close old thermal power plants which are around three decades old, in a phased manner. Based on data from the Central Electricity Authority of India, approximately 10 GW of thermal power plants could be impacted by this. This will help ease overcapacity in the sector to an extent.

We will maintain our strategy of maximising opera onal performance and deleveraging. Opera onally, the Company is benefi ng from the current level of coal prices and we expect this will allow us to demonstrate good profitability in FY20. We will con nue to repay borrowings and increase value for our shareholders as debt reduces and profitability increases.

-ends-

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