Power Sector - Q1FY14 Preview

There is ample scope to believe that the power sector will not come up with a good set of numbers for the June 2013 quarter. Rupee depreciation, continued issues on the coal supply front and falling plant load factors are likely to keep the performance of the sector subdued.

According to the data published by the Central Electricity Regulatory Authority (CERC), 1852 MW of power generation capacity was added in the country during the first two months of the current fiscal, against the targeted capacity of 1093 MW. Most of this, however, seems to be a spillover of the delayed capacity additions in the last fiscal and hence it should not be seen as improved efficiency.

During the quarter, the Cabinet Committee on Economic Affairs (CCEA) gave an approval for setting up a coal regulator but the details and the functionality of this regulator is not clear yet. It is expected that the coal regulator would bring some transparency in the sector. The CERC has also gone one step ahead in allowing power companies to recover the higher cost of coal by raising tariffs. This move should help the companies going ahead.

The long pending issue of gas pricing was addressed during the quarter as the oil ministry approved the gas pricing formula. This formula will see gas prices between USD 6.77 and USD 10.84 per unit, which will have an impact on gas-based power stations. The government has said that it will provide subsidy to the power sector but with the twin deficits widening, how it will do so is a question.

During the first two months of the quarter, the plant load factors of power stations have taken a beating. The all India plant load factor (PLF) during this period was below the targeted levels, implying that the sector as whole has not received adequate quantity of coal to run plants at the optimum capacity.

As for the companies, rupee depreciation will increase the cost of generation based on imported coal and hence Tata Power, Adani Power and JSW Energy may report a rise in the fuel cost and lower EBITDA margins. Tata Power has a huge forex denominated debt and there may thus be a further negative impact.

Further a good set of numbers are also expected from NTPC due to its monopolistic situation in the sector. NHPC and JP Power Ventures on the other hand may come with the poor numbers if these companies report a damage to their power plants due to the floods in the northern region.

Torrent Power's Unsogen, Tata Power's Mundra UMPP and Maithon plant and Lanco's Amarkantak plant have reported a drop in the plant load factors in the first two months. The gas based stations would further report poor performance and hence Lanco Infra, GMR Infrastructure and GVK Power would again come with a poor set of numbers. Reliance Power during the quarter has commissioned first unit of Sasan UMPP. This unit has a domestic coal tie up. The company had reported some good numbers in the last two quarters and hence we expect good set of numbers from Reliance Power.