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Sembcorp Industries Limited’s Latest Earnings: What Happened to its Indian Dream?

Sembcorp Industries Ltd (SGX: U96) hosted its second-quarter earnings briefing last week.

Sembcorp Industries has three business segments, namely utilities, marine, and urban development and others. The first two are by far the most important. The conglomerate also has majority ownership of Sembcorp Marine Ltd (SGX: S51), which falls under the marine segment.

Let’s take a look at what was shared on its all-important Indian utilities business.

I dream of India

Sembcorp Industries’ utilities segment has a gross power capacity of about 11,000 mega-watts (MW). China and India make up the majority of its capacity, as shown in the graph below.

Source: Sembcorp Industries’ 2016 facts and figures

Sembcorp Industries chief Neil McGregor gave an update on India during the results briefing.

“Let us now turn to India, where we have built up a substantial and balanced portfolio of thermal and renewable assets totaling over 3,800 megawatts.”

First off, he talked about the firm’s renewable energy business in India:  

“On the renewable side, Sembcorp Green Infra has achieved growth in both capacity and earnings while continuing to exercise prudence in project selection. Earlier this year, it won a bid to supply 250 megawatts in India’s first competitive national wind auction, reflecting the increasing depth of the capabilities that we have built in the renewable energy sector.”

Sembcorp Green Infra has 1,200 MW in wind and solar energy assets either in operations or in development in seven Indian states. In the first-half of 2017, around 925 MW were in operation, as summarised below.

Source: Sembcorp Industries’ earnings presentation

On the thermal power side, McGregor said:

“On the thermal side, the 2,640-megawatt Sembcorp Gayatri Complex, comprising of TPCIL and SGPL, performed well operationally with plant availability factor at 91% and plant load factor of 80%. The PLFs (plant load factors) achieved by our power plants put them amongst the top 15 IPPs in India.

In first half 2017, our first thermal power project, Thermal Powertech Corporation, TPCIL, performed better operationally and financially, delivering a net profit of $27 million.”

Plant load factors were healthy in India. TPCIL also recorded a net profit of $27 million in the first-half, a sharp reversal from the tepid profits recorded in 2016 and losses registered in 2015.  

However, it was not all a bed of roses. McGregor continued:

“As the second thermal power plant, Sembcorp Gayatri Power, SGPL, has yet to secure long-term power purchase agreements, we continue to rely on short-term contracts. As a result of very weak spot and short-term power tariffs, the plant incurred losses in first half 2017.”

The good results at TPCIL were undone by SGPL as the latter posted $55 million in losses. To add on to the woes, conditions are expected to last. McGregor said:

“We expect spot and short-term tariffs to remain weak over the next 2 to 3 years. However, with our strong asset base, we believe that we are well positioned when the industry utilization picks up in the medium term.”

We will have to wait and see what the second-half of the year brings.

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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.