India blackout sparks optimism for Mudajaya (5085)

INDIA'S massive power blackout earlier this week, the country's worst power crisis ever, could be positive for Mudajaya Group Bhd's associate there, says Alliance Research.


Independent power producer (IPP) RKM Powergen, which is 26 per cent-owned by builder Mudajaya, and some other IPPS have been trying to finalise a fuel supply agreement with Coal India Ltd.

"We view this blackout as a positive for RKM as there is heigh-tened pressure for Coal India to ink the fuel supply agreements with IPPs," Alliance said in a report yesterday.

One of the major hiccups in India's power sector had been the reluctance of Coal India to ink the coal supply agreement with IPPs.

RKM has four 360-megawatt coal-fired power plants in Raigarh, Chhattisgarh.

India's power disruption on Monday and Tuesday affected over 620 million people in 20 states.

Alliance said the event helped serve as a "loud wake-up call" for the Indian government to swiftly resolve its power shortage, which is estimated to run at a negative reserve margin of 15 per cent, implying that blackouts are experienced at some point every day.

Coal India had on July 31 agreed to supply at least 80 per cent of the required coal to the IPPs with any shortfalls met via imports.

A pooled pricing mechanism is to be employed to ensure pricing fairness to all IPPs, Alliance noted.

"While the pooled pricing mechanism will increase the overall coal cost for RKM, it will not dent its bottomline as it can invoke its Fuel Cost PassThrough mechanism to charge a correspondingly higher tariff," the research house said, keeping its "buy" call on the company.

Of at least eight research houses that track the stock, seven had a "buy" recommendation on it while one had a "neutral" rating, Bloomberg data shows.

Their target prices ranged from as low as RM2.88 to as high as RM4.37, the highest being from Alliance.

On Wednesday, Mudajaya announced that it had secured a RM30 million contract to build a road in Rawang, Selangor, that would take about two years to complete.

OSK Research, which has a "neutral" call on Mudajaya, said while the recent job award was a "positive surprise" that helped boost the company's jobs secured so far this year to RM1.85 billion, it doesn't expect the builder to secure any more jobs this year.

"Overall, while we are positively surprised by Mudajaya's strong job wins year-to-date, we continue to take a cautious stance on the company pending finalisation of the fuel supply agreement between ... RKM and Coal India Ltd," it said in a report yesterday.

It kept its fair value of RM2.88 on Mudajaya, which closed one sen higher to RM2.57 yesterday, on stronger-than-usual volumes.

The stock has gained 17.3 per cent so far this year, beating the benchmark FBM KLCI's 6.7 per cent increase.