Power sector growth in Q2 to be muted due to lower demand

Power sector growth during July-September quarter is expected to be muted mainly on account of poor demand from distribution companies (discoms) due to better monsoon and slow pick up in industrial activity. This resulted in decline in plant load factor (PLF) coal-based power plants to 54.7 per cent in Q2 while year-to-date, it stood at 59 per cent.

The demand for discoms is likely to be pushed back further with Ujwal Discom Assurance Yojana scheme likely facing implementation delays.

JM Financial notes low PLFs are despite 4 per cent growth in power demand (Jul-Aug'16) due to higher nuclear generation (+14% Y-o-Y) and 4 per cent growth in hydro generation in 2Q16. Hence, power deficit fell to near zero vs 2-2.5 per cent last year.

Analyst at the Religare expects NTPC to report flat growth in thermal output and lower PLFs (74.7 per cent vs 81.4 per cent in Q1FY17. On the other hand, JSW with a 27 per cent fall in thermal power generation in Q2 is likely to hit by rising cost of imported coal and rupee depreciation.

JM Financial says NTPC's earnings growth is expected to be in line with its regulated equity growth, but core Return on Equity (RoE) would be impacted by lower PLFs. JSW will be impacted by low PLFs at its most profitable merchant plants. However, hydro-plant earnings will cushion this impact partially.

Association of Power Producers director general Ashok Khurana told Business Standard, "The progressive decrease in average PLF, from 69.93 per cent in 2013-14 to 65.67 per cent in 14-15 and presently at 64 per cent, along with lack of fresh long term power purchase agreement (PPA) opportunities is a matter of great concern for generating companies. The problem is compounded further by the inordinate delay in announcing the coal allocation and usage framework as the earlier framework ended in March 2015. Looking at the surplus position of coal, the new coal allocation and usage policy framework should remove the restrictions imposed on coal usage, facilitate medium term PPAs and allocate coal linkages for all PPA holders co-terminus with their PPAs. The easing of coal usage restrictions will alleviate the stress to some extent."

As far as transmission sector is concerned, Religare expects PowerGrid Corporation to report revenue growth of 26 per cent and PAT growth of 27 per cent Y-o-Y led by strong commissioning in FY16.

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