How India power plants will drive Sembcorp Industries' earnings in the next two years

Profitability of an Indian unit to rise by 86% in 2H.

To cushion a hit from the increasingly competitive Singapore power market, Sembcorp Industries (SCI)'s global expansion strategy is proving successful.

According to DBS Vickers Securities, India power plants, in particular will mitigate earnings decline from the Singapore power plant.

SCI’s first Indian power plant - Thermal Powertech Corporation India (TPCIL, 1,320MW capacity) - made a small loss of <S$1m due to shutdown of the second unit for repair and maintenance since April, as guided in May. The plant commenced operations in June.

Hereon, profitability should pick up as 86% of the capacity has been contracted on long term Power Purchase Agreement (PPA) effective April.

"We expect TPCIL to contribute S$30m or 6% of FY16F earnings from startup losses of S$22.5m last year," said DBS.

The second Indian power plant - Sembcorp Gayatri Power (SGPL, 1,320MW capacity), meanwhile, is expected to achieve phased completion in 2016.

Long-term PPA for first 500MW capacity could be finalised soon though actual commencement could be a year later.

"This raises uncertainty on the profitability of the second plant next year as the spot market is volatile," said DBS.