Power Sector Q4 Expectations

The power sector, after the government’s directive, came into the limelight during the current quarter. The positive sentiment was created after the prime minister instructed Coal India (CIL) to improve coal supply to the power companies. However, this positive sentiment diminished after the Union Budget which disappointed the sector as there was no announcement as regards the SEB losses, tariff revision, etc. The improved sentiment pushed the sectoral index up by 33 per cent (598 points) from the New Year’s opening. After the budget the index tanked down by 295 points from its peak to the end of March 2012. On an YTD basis the index is up by 17 per cent compared to the Sensex which is up by 12 per cent. 

During the quarter the total generation was up by 4 per cent to 221 billion units (BU) compared to 212 BU during the same quarter last fiscal. As per the tentative data published on the CEA website, a total of 7,627 MW of new capacity was added collectively in the country. During the month of March a total 5,885 MW of capacity was added. This was on the back of the last month of the 11^th Five Year Plan. 

Despite this capacity addition, the plant loading factor (PLFs) of the thermal power stations have come down, indicating lower operational performance. In January a total of 21 power plants while in February a total of 25 coal-based power plants had a critical coal stock position of only four days. The gas-based stations reported PLFs in the range of 50 per cent which was due to the fallen gas output in the country. The private gas-based power producers have further reported PLFs below 50 per cent, citing a very bad quarter. The average PLFs in the quarter were below 80 per cent unlike the same quarter last fiscal.

Companies which imported coal were Torrent Power, Reliance Power, CESC, NTPC, Tata Power, JSW Energy and Adani Power. The Indonesian coal price for the thermal grade coal has remained over the USD 60 per tonne mark. The dollar during January remained in the range of Rs 51-53. In February it cooled off for a while but again it rose to over Rs 50 per dollar mark, making fuel imports costly. We believe this will have an adverse impact on these coal importing companies. Tata Power will see costly imports and as well as high mark-to-market losses arising due to its foreign currency loans.

Adani Power, Tata Power and JSW Energy have reported a surge in the power generation volumes. On the other hand, Jindal Power, GVK Power and Lanco Infratech have reported a decline in power generation. CESC in this quarter has reported a rise in power generation. Besides, the company has also carried out a tariff hike with retrospective impact and hence we expect rise in its revenues. Torrent Power has also impressed with a rise in its utility business. But its gas station, Sugen, has reported fallen power generation and hence may post muted results.

Recently the sentiment seems to be improving in the sector after the presidential directive on Coal India. The response of Coal India has been much delayed but it will be signing the fuel supply agreements with 50 utilities soon. The company is also expecting to divert the e-auction coal which will hamper its margins. Besides, the company, with an investment of Rs 75,000 crore, will expedite its production in the next five years. 

As far as the quarter completed is concerned, we expect good revenue growth from Power Grid, CESC and JSW Energy. The operating performance will remain stressed given the current business environment for the power generation sector. In fact we expect a continuation of fall in the EBITDA margins as fuel shortage coupled with the high prices will take a toll. We expect the earnings of Adani Power to remain muted due to their dependence on imported coal. There could be some surprise from Tata Power as it also has a mining business and the company is currently selling power in open access which fetches better prices. NHPC and NTPC may also report fall in the margins. Overall, the sector, barring very few exceptions, will disappoint. 

Table 1 Power Sector Comparable Quarters Performance

All values in Rs Crore

Table 2 Bloomberg Estimates