Power stks zoom as Cabinet ups lending limits for discoms; Tata Power up 8%

This would help those discoms that have exhausted their borrowing limits
Shares of power distribution companies charged ahead in an otherwise weak market, surging up to 9 per cent, on the BSE on Thursday after the Cabinet Committee on Economic Affairs (CCEA) on Wednesday relaxed the borrowing limits for the state government-owned power distribution companies (discoms) as a one-time measure.

Currently, discoms can borrow only up to 25 per cent of their previous year’s working capital under the limits stipulated in the UDAY scheme. Borrowing were tied to discoms’ operational performance to ensure discipline. The limit, however, has now been relaxed for a one-time lending. This would help those discoms that have exhausted their borrowing limits and will assist power retailers to clear their dues to generation and transmission companies to help reduce stress in the sector.

“The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. There is, thus, an immediate need to infuse liquidity in the power sector for continuation of power supply,” said a government statement. READ HERE

Individually, Tata Power zoomed 8.7 per cent to hit an intra-day high of Rs 62 per share, supported by heavy volume. A combined 49.61 million shares had changed hands on the counter on the NSE and BSE till the time of writing of this report. 

Sentiment was also positive at the counter as the company, in its investor presentation given on Wednesday, said it will explore merger and acquisition opportunities to strengthen its position in this space. According to the presentation, Tata Power, which is sitting on a debt of over Rs 43,000 crore, is eyeing Rs 9,000 crore revenues from its renewable energy operations by FY2025. The company plans to launch the infrastructure investment trust (InvIT) this fiscal, post which it will explore merger and acquisition opportunities, considering the fragmented nature of the sector and the potential assets available.

For organic growth, the company is eyeing the demand pipeline and expected capacity addition through bids from central agencies like SECI and NTPC and select state bids which have good payment track record, it said. READ HERE

Analysts at IIFL Securities gave an 'Add' rating to the stock, with a target price of Rs 60 on hopes that the company approach the SEBI soon, for filing its RE InvIT, close the deal by 3Q/4QFY21, and pare its consolidated debt by around 25 per cent (Rs 11,000 crore).

"Successful completion of the InvIT and change in PPA of Mundra are two visible steps for TPWR’s turnaround. Aggressive growth targets and progress on deleveraging thus far (sold assets of
Rs24bn + Rs26bn from Tata Sons) should offer the stock price a floor; the stock trades on a par with other regulated entities like NTPC, CESC, etc," it said in a report dated August 20.

Those at Kotak Institutional Equities have 'Buy' rating on the stock with a fair value price of Rs 70 per share. "The revision in fair value estimate is based on a higher multiple of 8X (from 7.5X) assigned to Tata Power Solar as well as the renewable portfolio owing to the ambitious growth targets of the company for these business verticals, as well as lowered holding company discount for the investment portfolio owing to continued progress on asset monetization," they said in their report.

That apart, other stocks such as NTPC rallied around 6 per cent, JSW Energy gained 5.2 per cent, Suryachakra Power Corporation, KSK Energy Ventures, and Jaiprakash Power Ventures were locked in the 5 per cent upper circuit band, Adani Power (4 per cent), and Indowind Energy (2.6 per cent). 

Adani Green, Torrent Power, SJVN, NLC India, Power Grid Corporation, NHPC, Adani Transmission, and Gujarat Gujarat Industries Power were up in the range of 0.6 per cent and 2.5 per cent at 10:50 am. In comparison, the S&P BSE Sensex was down 0.75 per cent.

Meanwhile, Power Finance Corporation and REC hit an intra-day high of Rs 99.8 per share and Rs 115.65 per share, respectivly, advancing 3.2 per cent and 1.2 per cent.

The power distribution segment accounts for 27 per cent of PFC’s total loan disbursement, while it is 44 per cent for REC. In April, both PFC and REC passed resolutions to not lend to any state that making financial losses and has high aggregate technical and commercial (AT&C) losses and have not filed for tariff revision. This has now been put on hold following the Atmanirbhar loan package.

"The fall in power demand and disruptions in the billing and collections consequent to the pandemic led lockdown since
March’20 has led to cash flow problems for DISCOMS that has further aggravated their financial stress... The absence of cost reflective tariffs, rising operational expenditure, high AT &C losses and delays in receipt of subsidy from the government has been pressuring the finances of state distribution utilities over time," said a sector report by CARE Ratings, dated August 17.

It added: Although there has been an improvement in electricity consumption and generation, the sustainability of the same would be contingent on the easing of the restrictions and resumption of economic activity. With industrial and commercial activity unlikely to attain pre-lockdown level of activity in the current financial year, electricity demand and the consequently generation would contract for the financial year as a whole.


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