Robust quarter for regulated power producers

For regulated players including NTPC, NHPC , Calcutta Electric Supply Corporation (CESC) and SJVN, Q2 of FY16 was a robust quarter as most of them beat the market expectations. Similarly, the performance of independent power producers (IPP) comprising Tata Power, JSW Energy improved largely due to increased coal supply and fall in prices of imported coal.

However, the  second quarter saw pan-India plant load factor falling to 60 per cent vs 62 per cent year-on-year (Y-o-Y).  JPMorgan in its report says adjusted September quarter profit of NTPC grew over 23 per cent Y-o-Y (10  per cent ahead of Street expectation) and the PowerGrid Corporation’s profit after tax  (PAT) reported over 20 per cent Y-o-Y increase (two per cent more than Street expectation). NTPC has operationalised the 500 Mw Vindhyachal plant recently, which would qualify for an additional 0.5 per cent return on equity (ROE) for early commissioning.

Religare analysis shows companies like CESC, NHPC, SJVN within the regulated space also reported a robust quarter with steady core ROE. However, PowerGrid Corporation was a slight disappointment with core ROE, lower than regulated ones, though this was offset by a better performance in the consultancy and telecom businesses.

Union Power Minister Piyush Goyal told Business Standard, “Robust performance of power companies was also due to a slew of reforms launched by the government. The coal auctions were completed successfully, while there was increase in coal production which led to rise in coal supply to utilities. There was highest increase in power generation and transmission capacity addition.”

As far as Tata Power is concerned, the firm has turned profitable during July-September quarter. Its net stood at Rs 247 crore as compared to a loss of Rs 78 crore in year-ago period on strong operational performance. The firm beat the Street, which had estimated profit of Rs 131 crore. Imported coal prices declined further by five per cent Y-o-Y in second quarter, benefiting Mundra ultra mega power project resulting in reduction in its losses. In case of JSW Energy, its net rose by a record 54 per cent to Rs 491.9 crore. The improved performance was due to increase in generation to 5,637 million units against 5,236 million units and also following the 13 per cent reduction in the fuel cost to Rs 1,070.81 crore from Rs 1,223.79 crore.

Religare notes that in the shorter run JSW Energy will benefit from a continued decline in imported coal prices, which will lead to another robust quarterly performance. “JSW Energy reaping gains as coal prices declined more than merchant prices, leading to better than expected spreads,” it adds.

Reliance Power’s PAT though up over 37 per cent Y-o-Y while Adani Power reported a September quarter loss of Rs 370 crore.The loss was post recognition of Rs 780 crore income in lieu of compensatory tariff.

Further, analysts term the recent power distribution sector reforms as a good example of cooperative federalism.

According to ICICI Securities, the Ujwal Discom Assurance Yojana (UDAY) will address the near term cash flow issue of the Discoms, by lowering its debt burden and, hence, increasing their purchasing power. This would lead to increased power offtake by Discoms and, thus, better plant load factor for companies like CESC, JSW Energy, Tata Power.

Furthermore, a rise in power demand would lead to higher power transmission and trading, which would benefit companies like PTC India and Power Grid Corporation.

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