SINGAPORE (March 24): Victory in India’s Upper House of Parliament for PM Narendra Modi’s BJP party in Uttar Pradesh spells good news for Sembcorp Industries, says UOB Kay Hian.
Currently, Power Purchase Agreement (PPAs) awards are in limbo as elections take centrestage in the country.
In a Friday report, UOB lead analyst Foo Zhi Wei says the win will strengthen BJP’s position in parliament which could see a hastening of the award process due to reduced political red tape.
“This will undoubtedly help the situation at Sembcorp Industries’ SGPL which is in need of a long-term PPA to be economically viable,” says Foo.
But while an acceleration is naturally positive, he warns it does not necessarily translate to immediate economic benefits as it is dependent on the supply timeframe specified in the agreement.
“Even if a PPA were to be signed and kicked in during 2H17, SGPL is expected to make a loss for 2017.
However, the contract will provide earnings visibility for 2018 and beyond, signalling the beginning of India’s earnings recovery,” adds the analyst who sees the utilities player as a long-term play.
Shares of Sembcorp Industries are trading flat at $3.13.
