MENU

SembCorp Industries Limited’s Latest Earnings Briefing: Can its India Thermal Operations Drive Growth in the Future?

SembCorp Industries Limited (SGX: U96) hosted its second-quarter earnings briefing last month.  

An area of interest was SembCorp Industries’ India Thermal operations. As a brief background, the Thermal Powertech Corporation India Limited (TPCIL) plant has two units with 660 megawatts (MW) capacity each. The SembCorp Gayatri Power Limited (SGPL) plant has two similar units with 660 MW capacity.

SembCorp Industries had 10,616 MW in power capacity (in operation or under development) at the end of 2015. In this context, its India thermal plants are significant contributors.  

TPCIL’s and SGPL’s status were summarized in the slide below:

2016-09-12-sembcorp-industries-india

Source: SembCorp Industries’ Earnings Presentation

TPCIL’s Unit 1 has been operational since March 2015, while Unit 2 has been operational since September 2015. Tang Kin Fei, SembCorp Industries’ chief executive, gave a summary of TPCIL’s performance:

“Commercially, we have secured 86% of net capacity for the long term PPA (power purchase agreement). So, that is a stable commercial condition.”

“However, you look at the operations, in the first quarter, our plant load factor was 83% and however, in the second quarter, it drop to 69% because of an equipment failure. From April to May. This problem has been ratified, and the plant has been operating well since June this year.”

“So, this company, TPCIL, has both favourable commercial conditions in place, and technically, the plant is operating well since June this year.”

“So, we expect a better second half for TPCIL in 2016.”

SembCorp Industries had initially expected TPCIL to break even last year, but fell short of its goal due to a flood in the area. The TPCIL plant recorded a S$1.5 million loss in 2015. In 2016’s second quarter,  TPCIL was also affected by an equipment failure. We will have to see if there are further teething issues in the future.

Tang talked about SGPL next:

“For SGPL, the Unit 3 is under commissioning right now. And we should expect the plant to achieve COD [commercial operation date] within the next one to two weeks. The second unit, mechanical construction will be completed by end September, early October – and then we will start commissioning after that. And we will start to achieve COD by end of this year. ”   

“We have not secured any long term PPA for SGPL. We are working very hard to try to secure the long term PPA. For one of the bid to Andhra Pradesh, we are the L2 bidder and we are very hopeful that we can secure this contract before the end of this quarter. So, this is a very important contract for SGPL.”

“However, even if we succeed in getting this contract, the commencement date for this long term PPA will only start around January 2018. During this meantime, we have secured some short term contract – 300 MW contract from Telangana will last us until May 2017 and also a one year contract as an alternate supplier for about 88 MW. We will continue to look for short term contract to bridge this period.”

The commercial situation at SGPL is a bit more cloudy. At best, it looks like SGPL will under a long term PPA from 2018 onwards. At worst, the long term PPA might not materialise.

Tang cautioned that India’s energy supply has exceeded the country’s demand in 2016. As a result, short term power prices were suppressed. Tang, though, remained optimistic for the India’s future based on the rising population and increase in consumption. 

If you want to learn more about investing and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.