Power producers' earnings to see uptick

With 9.6 per cent growth in electricity generation across the country, power companies are likely to report an increase in earnings during the first quarter of FY17 on year-on-year basis.

NTPC, the country's largest power generator, has seen nine per cent growth in generation. It generated 64.5 billion units during the first quarter ending June 2016, according to an HDFC Securities report. Analysts, therefore, expect it to be the star performer in the power universe.

The HDFC report said the increase in generation was led by coal-based generation, which grew 13 per cent in the first quarter this year over the previous. Generation by the central sector was up seven per cent, state was up 4.1 per cent, while the private sector continued to lead with a 17.5 per cent increase in the first quarter. The gradual pick-up in demand especially with temperature increase owing to the onset of the summer during May led to the growth in power generation.

Edelweise, in its analysis, said NTPC's power generation for June at 14 per cent YoY stood much higher than the industry growth of 9.3 per cent.

''The total delivered price of power by NTPC in the northern states was lower than the variable cost of power plants in those states. This has resulted in closure/low schedules for power plants such as China Light and Power, Gujarat State Electricity and many others. As inter-regional transmission bottlenecks ease, this trend would be far more prevalent unless demand uptick outstrips supply from the low-cost power stations. Overall, this implies that perhaps loss-making SEBs (discoms) can buy more power with same levels of cash collections from their customers,'' it adds.

IIFL in its report, however, notes that availability of water and fuel, financial strength of state electricity boards and availing timely environmental clearances will continue to be the key challenges for the sector as a whole.

Sajjan Jindal-controlled JSW Energy has also benefitted due to a favourable base effect, contribution from hydro assets acquired in September 2015, healthy generation, particularly in April and May, and continued benign international coal prices.

PowerGrid Corporation expects that its revenues will maintain the growth momentum especially in line with the capitalization trends for the past and current quarter. CESC expects modest parent earnings growth of 3 per cent YoY supported by its steady distribution business.

However, in case of Tata Power the lower availability of Mundra plant is likely to result in lower recovery of fixed charges, translating into  losses. This, coupled with lower earnings from coal business due to lower prices, may lead to subdued earnings. But other small Tata Power subsidiaries, like transmission utilities, solar EPC business and strategic engineering division may perform reasonably well.

A Religare report, however, mentions the marginal decline in the all-India plant load factor (PLF) from 64 per cent in May 2015 to 62 per cent in May 2016. According to the report, PLFs of power generation companies would improve by 100-200 bps to 64-65 per cent over FY16-FY18 on account of the temporary easing of liquidity for distribution utilities. Stronger demand as industrial activity improves is likely to further aid PLFs. Companies with existing plants, fuel linkages and power purchase agreements (PPA) are likely to be the key beneficiaries of the increased offtake, as state distribution utilities are not in a position to sign new PPAs. In fact, their current PPA renewals are either being stalled or signed for a lower duration.

Interestingly, analysts were unanimous that the power transmission continues to be the safest business model with favourable risk-reward and sustainable returns. However, Motilal Oswal suggests that capitalisation and capex guidance by PowerGrid Corporation for 2016-17, details on competitively bid projects and development on green energy projects, state JVs will have to watched. The country's largest transmission utility had invested Rs 22,500 crore in 2015-16. In its MoU with the Union government, it hinted at capex of Rs 23,000 crore for the current year.

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