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Even the best of us make mistakes or dive into an investment too early, which explains the concept of Warren Buffett stocks trading at discount. Though investors tend to hang on every word that comes out of the “Oracle of Omaha’s” mouth, he has never been one to attempt to time the market with the precision of a laser-guided bomb. Instead, Buffett emphasizes playing the long game.
Indeed, Buffett once advised that the “stock market is designed to transfer money from the active to the patient.” At the same time, everyone loves a good discount. And although no one is really enjoying the uncertainty that present economic conditions have imposed, they have also enabled Warren Buffett stocks trading at discount.
Essentially, the strategy is as follows: based on the holdings of Buffett’s multinational conglomerate Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), investors can identify certain companies trading at a relative discount that are also fundamentally relevant. In other words, these Warren Buffett stocks trading at discount likely won’t be deflated for long.Ticker Company Price KO Coca-Cola $64.13 MA Mastercard $350.21 HPQ HP $32.81 PARA Paramount Global $24.25 NEM Newmont $45.49 CE Celanese $119.09 RH RH $270.32
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If you follow the Oracle’s money advice, you’ll know that he has quite a sweet tooth. Indeed, the man is fond of Coca-Cola (NYSE:KO), which through Berkshire Hathaway owns about 10% of the soft-drink giant. For curious readers, Buffett apparently craves Cherry Coke.
Thanks to the troubles of the economy, KO is also one of the Warren Buffett stocks trading at discount. At the closing bell of July 22, KO found itself down 1.6% over the trailing five days. In the trailing month, shares are down half-a-percent below parity.
Is this the greatest discount ever? Not even close. However, what makes the company compelling is its fundamentals. First, the cynical argument: intake of poor quality elements increase during recession, which bodes favorably for the soft-drink king. Second, Coca-Cola features robust profitability metrics, with a net margin of 25.7% well exceeding the median 5.35% for the beverage industry.
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Another intriguing and cynical name among Warren Buffett stocks trading at discount is Mastercard (NYSE:MA). On a year-to-date (or YTD) basis, MA stock is down about 3%. To be fair, over the past month, shares have swung up more than 6%, suggesting rising momentum. Therefore, this deal might not last indefinitely.
Looking at outside factors, what’s particularly “appealing” about Mastercard is inflation. True, the erosion of currency strength — which equates to about 13 cents on the dollar — naturally hurts spending. On the other hand, with prices of virtually everything going up, households need to make their dollars stretch. Often times, credit cards are the only means available (aside from other drastic alternatives).
Like Coca-Cola, Mastercard also features excellent profitability metrics, something that the Oracle no doubt appreciates. For instance, the financial services giant has an operating margin of 55.3%, far better than the industry median of 16.9%.
At first glance, acquiring PC and printer manufacturer HP (NYSE:HPQ) doesn’t seem to make a whole lot of sense — even for Warren Buffett stocks trading at discount. Famously, the Oracle of Omaha wasn’t so prescient with IBM (NYSE:IBM), a somewhat similar company that held onto its legacy businesses a bit too long. Eventually, Buffett gave up on IBM.
However, he apparently sees a different situation with HP. For one thing, the move is a classic Buffett play, with the underlying company featuring a robust mix of strengths in the balance sheet and high profitability metrics relative to their industry norms. Notably, HP’s return on assets is 16.8%, ranked 95% better than companies in the hardware sector.
Another factor to consider is the long game. Again, Buffett is a man who emphasizes patience. And over time, HPQ could turn out to be a savvy investment. Of course, right, HPQ stock is down more than 13% YTD. However, there is plenty of room to run over the long term.
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While the entertainment arena has been a messy affair this year, that didn’t stop the Oracle via Berkshire Hathaway to acquire about $2.6 billion in Paramount Global (NASDAQ:PARA). Unfortunately, the company hasn’t been a stronger performer, with PARA stock down about 20% YTD. Nevertheless, for the risk takers, PARA stocks appears to be one of the Warren Buffett stocks trading at discount.
Mainly, Paramount features a mix of an extensive library of streaming content and a compelling sports programming portfolio. In other words, Paramount gives customers significant bang for their buck, which is why some analysts believe it’s one of the few platforms making the transition to streaming that can be successful in the long run. After all, we’re talking about one of the most competitive business segments around.
On the financial front, against a basket of valuation metrics, PARA stock is considered modestly undervalued. Like many of the relevant Warren Buffett stocks trading at discount, Paramount enjoys strong profitability metrics; in particular, its net margin of 14.3% ranks higher than nearly 84% of competitors in the diversified media space.
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If you know anything about the Oracle, you know that he loves his sweets and he absolutely hates gold. Indeed, the man has been very vocal about his disdain for the yellow metal, declaring that it has little to no value. Specifically, Buffett zeroes in on its lack of usefulness. Once, he stated about gold, “It doesn’t do anything but sit there and look at you.”
Still, mining giant Newmont (NYSE:NEM) is therefore one of the more intriguing ideas among Warren Buffett stocks trading at discount. To be clear, NEM stock is not a direct holding of Berkshire Hathaway. Rather, Berkshire acquired the insurance company General Re, through which it owns the holdings of specialty investment service New England Asset Management (or NEAM).
Since NEAM then owns Newmont, it allows Buffett to benefit from the precious metals sector, even if he’s not enamored with the sector. With inflation soaring through the roof, however, NEM stock could eventually recover, making for a potentially lucrative discount.
While everyone loves piling into the individual players that comprise innovative sectors such as electric vehicles (or EVs) and automated transportation, it’s incredibly difficult to predict which brand will ultimately win out in the commercial market. However, what all innovations need is access to critical chemicals and commodities, which is where Celanese (NYSE:CE) enters the frame.
A specialist in the field of differentiated chemistry solutions, Celanese represents the stagehands that help the top thespians put on a great show. Furthermore, the company has relevancies across several sectors, both pioneering and long established. Therefore, CE stock is like selling tickets to the game instead of betting on the spread.
However, Wall Street doesn’t see it that way, which explains why CE stock is down almost 30% YTD. Still, this also makes it an interesting name among Warren Buffett stocks trading at discount. With a solid balance sheet and excellent profitability metrics, CE is a significantly undervalued investment.
I’m going to be straight up about upscale home-furnishings firm RH (NYSE:RH) by letting you know that I don’t think it’s a wise investment. With turmoil in the housing market along with devastating inflation, I’m in the camp that real estate prices will decline first before they swing higher. Nevertheless, the subject here is Warren Buffett stocks trading at discount.
Sure enough, the Oracle believes in RH stock, even with shares down almost about 50% YTD. Perhaps it’s the patriotic side talking, but early last year, Buffett warned investors to never bet against America. Specifically, in his annual letter to Berkshire Hathaway shareholders in 2021, Buffett wrote, “In its brief 232 years of existence … there has been no incubator for unleashing human potential like America.”
Moreover, buying RH stock fits in with his general framework of acquiring good companies that happen to be going through rough circumstances. And despite latest troubles, RH stock commands a decent balance sheet with strong profitability metrics.
Plus, if he believes in it, who are we mere mortals to argue?
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The post 7 Warren Buffett Stocks Trading at a Huge Discount Right Now appeared first on InvestorPlace.
There was a time when being an engineering student meant you had a sword. Well, really it was a slide rule hanging from your belt, but it sounds cooler to call it a sword. The slide rule sword gave way to calculators hanging from your belt loop, and for many engineers that calculator was from HP. Today’s students are more likely to have a TI or Casio calculator, but HP is still in there with the HP Prime. It is hard to call it a calculator since the latest variant has a 528 MHz ARM Cortex A7, 256 MB of RAM, and 512 MB of ROM. But if you can’t justify a $150 calculator, there are some cheap and even free options out there to get the experience. To start with, HP has a free app that runs on Windows or Mac that works just like the calculator. Of course, that’s free as in no charge, not free as in open source. But still, it will run under Wine with no more than the usual amount of coaxing.
You might wonder why you need a calculator on your computer, and perhaps you don’t. However, the HP Prime isn’t just your 1980s vintage calculator. It also has an amazing number of applications including a complete symbolic math system based on xCAS/Giac. It is also programmable using a special HP language that is sort of like Basic or Pascal. Other applications include plotting, statistics, solvers, and even a spreadsheet that can hold up to 10,000 rows and 676 columns.
It is easy to think that HP provides the free PC software so you’ll go out and buy the real calculator, and that may be part of it. However, you can also get official apps for Android and iOS. They aren’t free, but they are relatively inexpensive. On iOS the cost right now is $25 and on Android it is $20. There are also “lite” versions that are free.
It appears that these apps are not emulating the real calculator hardware, but are ports of the calculator code. So this isn’t a case of someone just writing a pretend calculator, these apps act like the real calculator because it is running the same source code. For example, there is an application, HP Connectivity Kit, that lets you talk to a real calculator over the network. The PC and phone versions will also connect just like a real device.
You can write programs on the device or if you have the HP Connectivity software (also free) you can write programs on your PC. You can even find some from the Internet. If you miss your old calculator, there is a define feature that lets you program like a key macro recording.
The programming language isn’t hard to pick up. Here’s a short snippet:
EXPORT AREAVOL() BEGIN LOCAL N1, N2, L1; CHOOSE(N1, "Area or Volume?", "Area", "Volume"); IF N1 == 1 THEN CHOOSE(N2, "Choose shape", "Rectangle", "Triangle", "Disk"); ELSE CHOOSE(N2, "Choose solid", "Prism", "Cylinder", "Cone", "Pyramid", "Sphere"); . . .
You’d think that the real hardware would be a prime platform for hacking, but so far that’s still on the to-do list. The only really good hardware hack for the real calculator adds a Samsung battery with a higher capacity to the machine. There are also some enticing pads on the PCB that appear to support a buzzer and I2C communications, but there’s no firmware for it. There have been a few attempts to load alien firmware into the device, but there’s no full-blown development system. Getting to the JTAG port looks pretty intense. There’s also been the inevitable hacking of the communication protocol.
History is replete with products that seemed amazing for their day but turned out to be just a stopgap for something better. Cassettes gave way to CDs and then CDs gave way to digital music. Telephone answering machines gave way to voicemail. Calculators have that feel to them. How much longer will we need them? Are the virtual HP Prime applications going to overshadow the physical device?
Regardless, the Prime is state of the art and would shame a personal computer from a few years ago. You can only wonder if it will be the last great calculator, or if there are more yet to come. And a calculator still makes a nice project. Not all homemade calculators are simple.
Shimla: From 2018 to June this year, Himachal Pradesh Police issued 31,379 challans of illegal mining and recovered penalties total Rs 16.6 crore from 26,666 of these fines. The remaining 4,713 challans were presented in courts. In 2,803 challans, courts imposed fines of Rs 1.4 crore, while the remaining 1,910 challans were under consideration.
Gears fill the cases of automotive transmissions and are widely used in aerospace applications, but these simple tools are deceptively complex to manufacture. We thought it would be good to take a look at the process to remind ourselves exactly what the important issues are in gear manufacturing, so we asked Adam Gimpert, president of Helios Gear Products.
Helios supplies gear manufacturers with machine tools, engineering tools, and consumable surfaces for those tools. They sell, service, and rebuild gear-making equipment and they even make their own gear tool sharpening machine for their customers.
Another service the company provides is education. Normally, Helios will offer day-long briefings on Topics like “Fundamentals of Parallel Axis Gear Manufacturing,” but during a pandemic, such lectures aren’t practical. Still, Helios will provide an engineer to do a remote talk to customers who need their employees brought up to speed on some aspect of gear making.
With those credentials, Helios seems like the perfect source for our primer on gear making.
The primary process employed to turn blank slices of steel billet into meshing gears that can smoothly and efficiently transfer power between parallel shafts is called “hobbing.”
According to a Helios explainer, “Hobbing is a discontinuous generating cutting process that produces tooth forms about a cylinder. In simpler terms, hobbing uses a hob to cut gear external teeth and similar forms by meshing rotating rows of cutting edges through a blank. Most commonly, hobbing produces involute gears and splines, but it can also be used to produce serrations, sprockets, and custom tooth forms.”
Like on a lathe, a spinning cutting tool removes material from the blank. However, where a lathe holds the blank stationary, in a hobbing machine the blank spins in synchronization with the cutting tool to create the gear teeth. “The tool needs to spin at a perfect rate to generate the correct number of teeth,” explained Gimpert.
Hobbing is an appealing machine process because it is flexible. Hobbing machines can produce gears with different numbers of teeth from the same hob.
Gears can also be “re-hobbed,” if they have been slightly distorted by the heat treatment process and need their gear tooth profiles corrected. While re-hobbing requires the removal of very little material because the teeth have already been cut, that material has been hardened, so a specialized carbide cutting tool is needed for this process. An important shortcoming of the hobbing manufacturing process is that it is not suitable for cutting internal gear teeth, only external ones.
Helios Gear Products
Power skiving is a relatively new gear-making process that has been made possible by advances in machine tool design, CNC, and cutting tool technology, says Gimpert. It is similar to shaping (described below), but it is between 2 and 10 times faster than shaping, he said. A key feature is that power skiving can cut internal gears, unlike hobbing, and can do it more quickly than shaping can.
The machine tool needed for doing power skiving is similar in cost to a hobbing machine, but the cutting tools used are more costly, and more engineering work goes into preparing the job. The cutting tools are also very part-specific, so changing gear material requires a change to the cutting tool, according to Gimpert.
Worm milling is a cutting process that uses a circular-saw-like tool to produce a helical thread that is called a “worm.” Modern high-speed 10,000 rpm cutting spindles make worm milling an efficient, productive process. These mills require rigid machine tool for high-quality worms. They may require special equipment to allow the cutting head to swivel to nearly parallel with the work axis.
Shaping is a generating cutting process that uses a reciprocating cutting tool called a “shaper cutter” to produce a part. Shapers are very flexible, with the ability to cut both internal and external gears. The process requires a small clearance, so it can sometimes be used when hobbing cannot.
It is slow compared to hobbing because the reciprocating cutting motion is only cutting half the time. That reciprocation also requires a massive rigid structure to provide kinematic damping for modern high-speed machines.
Cutting manufacturing processes may leave burrs on the resulting gears, which may cause damage and noise for gears in mesh. These burrs can be cleaned up manually using brushes or cutoff wheels. To speed up the deburring process, shops can do chamfer-deburring with machine tools. The frees workers to do other things while the automated machine smooths the gears.
Machine tools can also be used for chamfer-deburring. By using a machine, manual labor can be recovered for other uses, the deburring process itself will be more reliable and consistent, and automation can be implemented for improved productivity.
Another way to finish pre-cut gears is generating grinding. This uses a worm threaded grinding wheel meshing with a gear. As the two turn in synchronicity, the griding wheel continuously removes material to create a finished form. Generating grinding is a highly productive method for gear finishing that requires a dedicated gear grinding machine.
Form grinding, which is also called profile grinding or single-index grinding, uses an abrasive tool to grind one tooth space or tooth flank at a time. This may be done with consecutive passes or in a single pass using a tool that is the conjugate form of the tooth space. Form grinding can be very flexible and generally less expensive than generating grinding. Form grinding requires a dedicated gear grinding machine.
Only about one-fifth of the S&P 500 have so far reported second-quarter results, but at least five major talking points have emerged — some quite surprising — since earnings season started more than a week ago.
A key concern heading into earnings season wasn’t what happened during the previous three-month period, but how much companies would lower forward guidance, given growing fears the Federal Reserve’s aggressive interest rate increases to fight historically high inflation would tip the U.S. economy into a recession.
But with 106 of the 503 S&P 500 companies having reported results through Friday morning, according to FactSet, that expected negative has so far been a positive.
For the second quarter, while more companies than usual are beating profit and revenue expectations, they’re beating them by narrower-than-usual margins.
Through Friday morning, 75.5% of the companies reporting have been beating consensus analyst projections for earnings per share, by an average of about 4.7%, according to I/B/E/S data provided by Refinitiv. That compares with 66% of companies beating EPS estimates in a typical quarter since 1994, and an average beat margin of 9.5% for the prior four quarters.
And for revenue, 68.9% of the companies have topped forecasts by an average of about 1.3%, compared with 62% of companies beating in a typical quarter since 2002 and an average beat rate of 3.4% for the prior four quarters.
More beats by less than the usual amount has led to year-over-year growth in the blended EPS estimate, which includes results from companies that have already reported results and estimates of companies yet to report, to slip to 5.0% from an estimate of 5.7% growth as of March 31, according to FactSet data.
The blended estimate for revenue growth has increased to 10.7% from 9.7% at the end of March, FactSet said. That’s because companies are not selling more but are selling at higher prices.
Meanwhile, despite worries that recession fears would lead to a raft of full-year guidance cuts, that just hasn’t been the case. In fact the ratio of negative EPS preannouncements to positive preannouncements has so far been 1.7, according to I/B/E/S data, well below the long-term average of 2.6, and only slightly above the average over the prior four quarters of 1.5.
As a result, the FactSet consensus growth estimate for EPS has increased to 9.7% from 9.3% as of March 31, while the growth estimate for revenue has jumped to 10.4% from 8.9%.
Jeff Buchbinder, equity strategist for LPL Financial, said earnings are “well on track” to grow by more than 5% from last year, given “solid” beat rates and “healthy” revenue growth, bolstered by higher pricing.
“We believe the revenue environment and corporate productivity are in too good of shape for earnings to contract anytime soon,” Buchbinder said. “Bottom line, the pessimism may be overdone.”
That said, there was a worry heading into earnings season that is being fulfilled: The sharp rise in the U.S. dollar will reduce the value of profits and revenue generated from overseas operations.
Here’s why a rising dollar can hurt results of multinational companies: The U.S. dollar-Japanese yen exchange rate increased to 135.75 on June 30 from 122.50 on April 1, meaning 10,000 yen in earnings was worth just $73.66 on June 30, down from $81.63 on April 1.
So with the U.S. dollar index DXY, -0.29%, which tracks the dollar against a basket of currencies of major trading partners, surging 6.5% during the second-quarter, the biggest quarterly gain since the fourth quarter of 2016, currency translation had a large negative effect on earnings.
For example, International Business Machines Corp. IBM, +0.11% said earlier this week that second-quarter revenue growth was 9%, but would have been 16% if not for the negative effects of dollar strength. And Dow Inc. DOW, +2.06% said on Thursday that currency decreased sales by 3%, while Johnson & Johnson JNJ, -0.77% said unfavorable currency translation reduced its sales growth by 5%.
“This will be a consistent theme that receives significant attention throughout the earnings season,” said Lindsey Bell, chief markets and money strategist for Ally, especially for the technology sector, in which nearly 60% of the sectors revenue is generated overseas.
Fears that ad-supported internet stocks were facing a perfect storm of issues that would show up in second-quarter earnings were realized this week, when Snapchat parent Snap Inc. SNAP, +3.54% posted what one analyst called “terrible” numbers, as others rushed to downgrade the stock.
Snap missed revenue consensus estimates and executives declined to provide a financial forecast while speaking of a second quarter that was “more challenging than we expected.” Snap had already warned weeks back that it was bracing for disappointing performance.
The company is dealing with issues unique to the evolving social-media landscape as well as a broader macroeconomic storm. Not only does it have to deal with TikTok’s rise and lingering privacy-related impacts from Apple Inc. AAPL, -0.15%, it’s also facing an ad-market slowdown that spooked analysts.
“Results suggest a significant deterioration in advertiser demand, which will likely weigh on the sector,” Piper Sandler analyst Thomas Champion wrote in a note to clients late Thursday.
“When fundamentals change this dramatically, it’s hard for us not to change our investment opinion, however belated the call,” said Evercore’s Mark Mahaney, who cut his rating on Snap’s stock to in line from outperform.
“We will await a stabilization in revenue growth before considering getting more constructive,” he added.
MoffettNathanson downgraded the stock to market perform. Among other gripes, the analysts there said that “after spending many years denying that competition from TikTok is an issue, it may turn out that Snap’s usage and advertising growth is actually far more challenged than they knew.”
The supply chain and labor shortages have featured prominently in earnings for the past several quarters and this one is no different so far.
But there are finally some signs of improvement in supply chains, as measured by certain indexes.
The NY Fed’s supply chain index is currently at its best level since March of 2021 — it hit its worst level in December of 2021, as Tom Lee, head of research at Fundstrat Global Advisors, noted in commentary.
Lee cited upbeat comments from Volvo AB VOLV.B, +0.91%, which said semi chip access was improving and production at best levels all year, and railroad operator CSX CSX, -0.36% which said there are “clear signs” from car makers that chip challenges are easing.
And on Thursday, chemicals giant Dow Inc. said it had “higher supply availability” for its industrial solutions and for its coatings & performance monomers business.
The news on the labor market is less cheery, however. The challenge of finding train conductor trainees, for example, led Norfolk Southern Corp. NSC, +0.23% to put out an unusual release, highlighting an increase in hourly pay to a minimum of $25 and biweekly on-the-job training incentive of $300.
Atlanta, Ga.-based Norfolk said conductor trainees in priority locations can earn up to $5,000 in starting bonuses and expect first-year pay of an average $67,000, along with benefits including a pension, a 401 (k) savings option and healthcare coverage
Those locations include some economically depressed ones: Bellevue, Ohio, Fort Wayne, Indiana, Binghamton, New York, Harrisburg, Pennsylvania, Cincinnati, Ohio, Louisville, Kentucky, Conway, Pennsylvania, Peru, Indiana, Decatur, Illinois, Princeton, Indiana, Elkhart, Indiana and Roanoke, Virginia.
The challenge of finding railroad workers showed up in CSX’s earnings too. Chief Executive Jim Foote told analysts on the company’s earnings call that it was having trouble hiring and retaining workers.
“We are not alone in facing this problem,” said Foote, according to a FactSet transcript. “The labor market is tight. Prospective recruits have many job options.”
When Twitter Inc.’s lawyers asked a Delaware judge Tuesday for a speedy trial that would settle its merger spat with Elon Musk, they argued that the saga’s overhang was causing constant harm to the company.
That subject came up again when Twitter TWTR, +1.43% reported downbeat financial results Friday, including a surprise dip in revenue and a sizable $270 million loss. Among factors the company blamed for its revenue miss was “uncertainty related to the pending acquisition” by Musk. The company also pointed to about $33 million in second-quarter costs related to the deal.
Twitter didn’t elaborate further in its earnings release, nor did it hold a conference call, so investors are left to wonder how exactly the Musk dispute impacted the company’s revenue. The company’s legal filings and arguments hold some clues about what the company may mean. Lawyers argued in a written complaint that Musk’s “derogation” of the deal close and his “repeated disparagement of Twitter” and its employees “create uncertainty and delay that harm Twitter and its stockholders” while opening the company up to adverse business effects.
At Tuesday’s hearing, Twitter’s legal team discussed employee unease due to uncertainty over the deal. It’s possible that Twitter is having trouble retaining employees during a tumultuous period, or that turmoil around the deal is impacting the ability to roll out projects effectively and on time.
“It does seem like there’s turmoil amongst employees and even among the board,” said Carl Tobias, a law professor at the University of Richmond. “The future of the company just doesn’t seem very clear.”
A Twitter representative said that the company was not providing additional details on revenue performance beyond what was in the release.
Twitter also mentioned a tougher advertising backdrop as another reason for its revenue performance. Given building unease about the state of the ad market in the weeks leading up to Twitter’s report and the dire signals sent by Snap earlier in the week, it’s likely that ad-market challenges are more to blame for Twitter’s top-line woes than the ill-defined Musk effects.
But there could perhaps be a link as well: In a rocky climate for ad spending that’s seen brands tighten their belts, marketers may be opting for safer platforms that aren’t the source of controversy over bot activity.
The Power Ministry has proposed a new segment at power exchanges—High Price Market Segment—which will allow electricity producers and sellers with production cost of more than ₹12 per unit to participate in the market.
It will allow gas-based power plants and imported coal-based (ICB) power plants with production cost of over ₹12 per unit to sell electricity in the market. As of June 2022, India’s gas-based installed power capacity is 24,856 megawatts (MW), while ICBs have 17,255 MW capacity.
The Ministry has asked for responses from the Central Electricity Regulatory Commission (CERC), Central Electricity Authority (CEA), power exchanges and other stakeholders on introducing the High Price Market Segment for Day Ahead Market (HP-DAM). The last date for submitting responses is August 21, 2022.
“This will enable high-cost power plants to be made available during high demand periods. Only such buyers who are in deficit and can afford to pay high prices will be able to participate in this segment. The other buyers and customers will not get affected,” the Ministry explained.
In April this year, the CERC capped spot prices at ₹12 per unit in order to address the issue of high prices in power exchanges. While it ensured that spot prices are within ₹12 per unit, Gencos with high variable costs have been unable to participate in this market.
The Ministry proposed that sellers with variable cost greater than the price cap of spot at I-DAM (₹12 a unit) will be allowed to sell power in HP-DAM. These can be gas-based power plants, ICB plants or any other entity that meets variable cost eligibility.
A no objection certificate (NOC) will be provided to such sellers or entities bi-annually through the National Open Access Registry (NOAR).
The Ministry also suggested a minimum bid price of zero per unit, while the maximum price can be decided based on feedback from stakeholders, which will be higher than the existing price cap for Day Ahead Market (DAM).
The price discovery for HP-DAM will be Double-Sided Closed Auction similar to G-DAM, DAM and RTM.
Analysts are of the view that the proposal is challenging to implement and seems to have been introduced without adequate research on its implementation process as well as impact on the market.
Nangia Andersen Leader (Power Sector Advisory) Arindam Ghosh observed that several products have been proposed by the Power Ministry without adequate background research into how they would be implemented and what their impact would be.
“It appears that only a very small number of gas and imported coal stations will enter this market, since there will be always the risk of non-clearance. This will make the market illiquid. Their earlier decision of capping the normal DAM segment to ₹12 is not in the right spirit of the market. Ex-chairperson of CERC PK Pujari was vocally against it, stating that prices should be determined by the market, not by regulatory intervention,” he added.
Ghosh suggested that instead of removing the price cap on normal DAMs, it would be better to allow all gas and ICB plants to bid under normal DAMs. A handful of generators cannot influence the price discovery of the market.
“It will even be challenging for Regional Load Despatch Centres (RLDCs) to obtain NOCs. The verification process for identifying which generators qualify for the high price market would be extremely challenging. As a result, there would be a high risk of manipulation with variable cost data,” Ghosh explained.
Published on August 04, 2022
During the peak summer demand season of April and May, the average hours of power supplied to rural areas in the country stood at 21.48 hours a day with States such as Gujarat, Maharashtra, West Bengal and Andhra Pradesh providing electricity to villages for more than 23 hours.
According to the data, which is part of a reply to a question by Power Minister RK Singh in Rajya Sabha on Tuesday, the power supplied to villages in Haryana, Himachal Pradesh and Karnataka has been well below the national average during the first two months of Q1 FY23.
As per the average hours of power supplied during a day in rural feeders, Maharashtra topped the list with 23.93 hours followed by Gujarat (23.76 hours), West Bengal (23.38 hours), Andhra Pradesh (23.30 hours) and Madhya Pradesh (22.70 hours).
On the other hand, among the least performing were Haryana and Himachal Pradesh with power supply in villages for just 14.05 hours each followed by Karnataka (16.88 hours), Tripura (19.21 hours) and Bihar (20.77 hours).
On power supply disruption, Singh in his reply said “Interruptions in supply of electricity are generally on account of constraints of distribution network, or financial constraints with some distribution companies not having the resources to pay for power. Supply and distribution of electricity to all consumers is done by State power utilities.”
Centre has assisted States through various schemes including Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Distribution Scheme (IPDS) for uninterrupted power supply to all households, he added.
Ministry of Power has now launched the Revamped Distribution Sector Scheme (RDSS) with the goal of achieving 24x7 power supply along with improving the financial viability of state-owned distribution companies, the Minister said.
Among the top performing states, Maharashtra provided power to its villages for 23.16 hours during FY22. Similarly, Gujarat provided electricity for 23.50 hours, West Bengal (23.38 hours), Andhra Pradesh (23.62 hours) and Madhya Pradesh (19.35 hours)
Among the least performing states, Haryana provided electricity in rural areas for 16.26 hours in FY22, . Himachal Pradesh for 13.26 hours, Karnataka (17.56 hours), Tripura (19.93 hours) and Bihar (20.39 hours).
April, May and June are peak months for power demand due to high summer temperatures. In FY23, the first quarter witnessed exponentially high summers with mercury hitting 48-49 degrees in many places across the country. India’s power consumption in Q1 FY23 broke all past records.
For perspective, the all-India power demand was up 18.6 per cent y-o-y during the quarter and the peak demand at 216 GW was 6.3 per cent higher on an annual basis. Daily peak power demand for Q1 FY23 averaged 196 GW (vs 187 GW in Q4 FY22), brokerage ICICI Securities said in a report.
On April 29, India’s peak power demand met during the day was recorded at 207 gigawatts (GW), which is higher by 13 per cent on an annual basis, and the energy met stood at 4578 million units (MU).
On a day-to-day basis, power demand is around 40,000-45,000 MW more than the same period last year. Energy consumption has also gone up from 3,500 MU on an average to 4,500 MU during the same period.
Published on July 19, 2022