India is Thirsty for Energy: Will the Bulls Take Notice?

I've mentioned quite a few times in the past, I'm always surprised by the almost singular focus on China in this country's press, with nary a word about India... a country without a "1 child" rule and should surpass China in population by 2050. Perhaps I am biased since I've made some solid profits with Indian stocks over the years... I thought perhaps it was due to the lack of Indian stocks that trade in the US, but we have the same problem with Brazil and Russia yet I hear more about Brazil than India. Interesting.

Here is a recent piece from the NY Times. These are the type of articles that makes it simply impossible to bet against energy in the long run, and a 'World of Shortages' thesis overall.

• The air is thick with the construction dust of new glass-fronted high-rise buildings. The traffic moves so slowly that commuters can gape all they want at the Burberry advertisement that lights up the facade of a shopping mall. In the din of car horns and cranes, Sucharita Rastogi, 27, a business school graduate, waits wearily for her office van to pull up and take her home; it will be at least a 90-minute crawl. “Mind-wise,” she says, “we are exhausted, sitting, waiting.”
• A beacon of India’s red-hot economy, this new suburb on the edge of the capital, New Delhi, is also a symbol of India’s fast-growing hunger for energy. By the government’s own estimates, energy consumption in this country of 1.1 billion is expected to quadruple over the next 25 years, inevitably expanding India’s emissions of greenhouse gases.
• At the moment, it is a mixed blessing that Gurgaon remains an island of air-conditioned malls and roaring, round-the-clock office towers, and that behind this brightly lighted boomtown lies a vast nation of darkness and cow-dung-fueled stoves.
• Almost half of India’s population has no access to the electricity grid, and many more people suffer hours without power. Nearly 700,000 Indians rely on animal waste and firewood as fuel for cooking. As a result, India’s per capita carbon footprint remains a small fraction of that of the industrialized world — the average American produces 16 times the emissions of the average Indian — and in turn empowers the central Indian argument for its right to consume more, not less, energy in the future.
• India has consistently bucked pressures to set targets for reducing emissions, arguing that it has neither been a significant polluter nor yet able to spread modern energy to millions of its poor. Instead, it has pledged to ensure that its per capita emissions never exceed those of the developed world.
• India points out that it contributes only 4.6 percent of the world’s greenhouse gases although its people represent 17 percent of the world’s population.
• India’s total emissions are the fourth largest in the world, after the United States, China and Russia, though its per capita footprint remains as low as anywhere in the developing world: 1.2 tons annually, compared with 20 tons in the United States and the world average of 4 tons. The International Energy Agency, a policy and research group in Paris, forecast in November that India’s energy demand would more than double by 2030.
• The agency also forecast that the transportation sector was likely to drive up energy demand the fastest, as prosperity brought more cars on the road. Coal imports alone could rise sevenfold, the report added. Construction is also hugely energy intensive

Comments

[Rajiv Sethia:]

The $3bn Reliance Power IPO (=10.1% of the company) last month in Mumbai was oversubscribed 73 times. (The IPO price was Rs 450, now at Rs 375, but the company announced a "bonus" issue of 3 shares for every 5 held to only the IPO allottees to take care of the losses on listing). Ticker is RPOWER.NS, but US based investors cannot invest.

2008 Mar 06 09:48 AM

[TraderMark:]

Thanks Rajiv
I like Reliant and I'd like to get to the parent of Tata Motors (Tata itself)

It is too bad there are so few choices in US for investing in India... mostly banks and IT outsourcing firms.

2008 Mar 06 10:46 AM

[chanakya:]

Well.. unfortunatley the controlling shareholder(mostly) of the Tata group.. Tata Sons is not listed.. so neither Indian or non INdian investors can have a slice of that.. but iam sure you do have Tata Steel, Tata Motors and other Tata ADRs that can be looked at.

2008 Mar 06 10:37 PM

[AlphaRomeo:]

US-India nuclear deal is critical for India to meet upcoming energy demand without contributing significantly to global warming. State of Maharashtra is setting up a huge energy hub as well. India has a huge potential to create solar energy as well. I wonder if the latest budget presented provides incentives for alternative energy.

2008 Mar 07 07:15 AM

[Niraj Sanghavi:]

I just hope, India's surplus is used in developing rural area's where people are living in darkness and improper gas facilities.
This should be done jointly i.e. private and govt.Maybe a tender should be developed.

2008 Mar 07 12:11 PM

[Deepak Shenoy:]

Power stocks have had their runups recently, with P/Es going over the roof. Two big recent IPOs have whetted demand - Rural Electrification Corporation (which is a utility financier of sorts) and Reliance Power (which has projects for 28,000 MW production by 2015) RPower isn't doing all that great on the bourses, with all the drama around it, but at current prices it's still quite expensive.

Other listed stocks are Reliance Energy, Cairn Energy, Tata Power, GVK Power, JP Hydro, Suzlon Energy, Areva T&D, and NTPC. NTPC is the biggest player - 27,000 MW of power today - and is at a reasonable P/E of 23, most of hte rest are 30+.

There are power finance and trading companies like PTC and PFC, equipment manufacturers like BHEL, BEML, Siemens, Ing Rand, Bharat Forge etc.

Suzlon, Areva and JP Hydro are clean energy vehicles, and wind energy already gets a 150% depreciation benefit in tax (A huge number of windmills, owned by private parties and operated by Suzlon, have come up to take advantage of this law)

Apart from this there's Moser Baer who are getting into solar cell manufacturing. That's another huge business, and has tax and other benefits attached (homes with solar get a discount on their regular electricity bill etc)

With India's large local gas finds there isn't too much of a problem with supply, and in the next few years there is likely to be a huge surge in power production.

Now for the power plants, there are PPAs in place but given the populist politics there is also significant counterparty risk. (Remember in the Enron plant, the Maharashtra govt. just refused to honour the PPA) This should change with more home grown players who know how to work the government.

India will soon get a regulated energy trading exchange (restricted to only producers and utilities). That will alter the landscape but will take time.

This field is overpopulated and is prone to oversupply (a very good thing for consumers). Unless the grid stretches out to those that need it, reduce T&D losses (there is nearly NO research in India, and no player is funding research either) and contain theft, the supply may only benefit urban consumers. That means huge competition for cities and no benefit to the rural folks who really need it. I hope the coming recession will draw focus to such issues.

2008 Mar 08 01:59 AM