Why Sembcorp's Indian power business could face volatility this year

Its first unit incurred relatively high startup losses of up to $27m.

According to DBS Group Research, Sembcorp Industries' India power business could be volatile this year.

"The first unit of SGPL commenced operations in Nov-2016 and second unit in Feb-2017. The plant incurred relatively high startup losses of $26-27m each quarter in 4Q16 and 1Q17," the brokerage firm said.

Besides the potential teething issues, DBS Group Research said earnings can be volatile in the absence of long-term power purchase agreement and coal cost pass-through mechanism, while market is competitive in short term.

"[The group] is actively exploring short-term contracts as an “alternative supplier” to help fill the gap of generation by other power plants, which should yield better margins than just covering cash cost in the case of the spot market," it added.

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