OPG Power Ventures

With local grid power persistently inconsistent, Indian power generation play OPG – up 35% since it was recommended here in December – remains an exciting niche play.

Back in December, the group secured the generous banking arrangements, supplementing the £52m cash it had in the bank, to complete the construction of one new 77 MW plant this year as well as a pair of 150 MW plants by 2011.

Its latest trading update confirms that the company’s progress with the development of the former plant has been slowed slightly as a key component has failed to pass a critical test at the forging plant. This will create a ‘short delay’ and house broker Cenkos believes this will push back the plant's opening to the beginning of October.

Otherwise the news is good, with the development of OPG's pair of 150 MW plants in the state of Gujarat proceeding smoothly. A contract has been sealed for the supply of turbines, boilers and generators and TATA has been hired as the consultant engineer.

With projects of this size, delays are to be expected and investors should not be too surprised to see another hiccup along the way. However, they should not worry unduly, as OPG's upside remains substantial, with full power generation capacity set to be reached in 2012.

Results for the year to March (out towards the end of June) are expected to show profits of £2.7m before tax and 0.3p of earnings, with Cenkos trimming earnings forecasts for 2010 to 2.1p, but holding 2011's at 4.3p with 'considerable scope for upgrades'. By 2012, these estimates could be dwarfed. Buy and lock away.

Save 50% off your first year’s subscription to Growth Company Investor magazine, and gain immediate access to all the recommendations online. Click here.