Valuing A Thermal Power Utility in Emerging Markets over Various Stages of Life Cycle

Abstract

Power sector consists of generation, transmission and distribution utilities and is considered as one of the most important component of any country s infrastructure as long run growth of any country would depend highly on its power sector industry. Infrastructure development also leads to reduction in income gap and poverty of any country. Power sector, which is an integral part of infrastructure industry, is one of the best performing sectors in emerging markets and is responsible for growth of various other sectors like commercial enterprises, manufacturing, railways etc. Therefore this sector becomes a key factor for any country s economic growth and development. The growth profile of any emerging country in future would highly depend upon the availability of various infrastructure facilities including electricity. newline But this sector at the same time also faces several critical issues like raw material pricing and availability, green energy alternatives, global recession, infrastructure maintenance, power losses, demand supply gaps and resource scarcity which are difficult for investors to quantify at the time of valuation of a power sector generation utility. Given an increase in fuel prices, growing energy demand, environmental issues and increase in equity prices in power sector, valuation of power sector entities has gained significant importance in recent times. newline There are various methods available for valuation of a power sector company. But at the same time prediction of value of a power sector company is difficult due to special nature of this industry. Because of this reason, traditional methods like DCF, Multiple Valuation or real option also need adjustments for the factors mentioned in the above paragraph before being applied to power sector entities. Such factors need to be quantified and taken into consideration so as to arrive at correct valuation of power companies. newline