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OPG profits jump 35pc in first-half

The Indian power company expects to be generating power on two major projects within the next three months, says Questor

Pre-tax profits jumped 70pc to £17.95m, on revenues up 78pc to £98.8m during the year ended March.
Pre-tax profits jumped 70pc to £17.95m, on revenues up 78pc to £98.8m during the year ended March. Credit: Photo: PA

OPG Power Ventures
97.88p+1.88p
Questor says BUY

OPG Power Ventures [LON:OPG], a power company based in India and listed in London, offers UK investors the opportunity to benefit from power shortages in the Asian country.

The Aim-listed group yesterday reported a strong set of first-half results, which sent the shares 2pc higher. Pre-tax profits increased 35pc to £10.3m, up from £7.6m at the same stage last year.

The utility company is coming towards the end of a major coal-fired power plant construction project. It currently has power plants in operation generating 270 megawatts (MW) of power. The interesting point for investors is that a further two plants - which will add another 450 MW, bringing the total to 750 MW - are in the final stages of commissioning and have received coal deliveries to start generating power.

The company expects to start ramping up the 300 MW Gujarat plant within the next three months. Analysts from Investec estimate that the increase in power production next year is slightly slower than expected, but as a guide they forecast pre-tax profits of £31.5m for the year ended March 2016, giving earnings per share of 7.2p.

This is high-risk investing as the company is exposed to commodity, currency and construction risks. But the shares, trading on 13.4 times forecast 2016 earnings, reflect a lot of that risk.

The company is growing quickly through a vast power plant construction project. The main input cost is the price of coal, which is falling. The final issue is currency risk around the Indian rupee, which has now stabilised after sharp falls last year.

The reality of full power production is now getting close and the shares are up 5pc on our initial recommendation (Buy, 94p, May 22). We retain that recommendation.