New Delhi/Mumbai: Power Grid Corp. of India Ltd, blamed for a network collapse that left more than half the nation’s population without electricity a year ago, will boost a $16.5 billion investment plan by 10% as it seeks to prevent a recurrence.
“A further Rs.10,000 crore ($1.6 billion) will be spent in the five years to March 2017 to complete projects,” chairman R.N. Nayak said in an interview. “The company, based in Gurgaon near New Delhi, plans to offer new shares to finance the additional investment after it sold Rs.3,970 crore of bonds last month.”
Power Grid is doubling its transmission capacity and investing in systems to avoid the kind of outage that shuttered factories, halted transport and left about 620 million people in the dark on 30 July and 31 July last year. The company has increased penalties to discourage provinces from drawing power in excess of their allocations, a breach that had caused the northern grid to break down.
“We’ve have come a long way since last year’s blackouts,” said Debasish Mishra, a partner and head of the energy practice at Deloitte Touche Tohmatsu India Pvt. in Mumbai. Grid discipline has improved considerably and chances of a second such blackout are really thin.
Power Grid shares fell the most in almost five years in Mumbai on 2 August following an announcement the previous day to sell 694 million new shares, amounting to 15% of the existing stock. The shares, which slid 11% to Rs.91.35, have declined 23% in the past year, compared with an 11% gain in the key S&P BSE Sensex.
Analysts, who had expected Power Grid to use its Rs.2,870 crore of cash and equivalents to meet its funding requirement, were surprised by the share-sale statement. “Since January, the company had said it was ready to change its 70:30 debt-equity mix to 75:25 and a share sale was not on cards in the year ending 31 March,” said Anubhav Gupta, an analyst at Kim Eng Securities Pvt. in Mumbai.
“Although there had always been an overhang of a possible equity dilution, we didn’t expect it to happen this year,” Gupta said. “They don’t have a cash crunch.”
Of the 43 analysts covering the company, 39 recommend investors buy the stock, while two suggest selling.
While stringent restrictions have succeeded in avoiding a large-scale grid failure, outages continue to plague large swathes of the country.
“That’s not going to change in a hurry,” Mishra said. “States that now risk heavier penalties for overdrawing power, are simply not buying enough.”
Lost in transmission
More than a quarter of the electricity generated in the country is lost in transmission because of theft and dissipation through wires. Distribution utilities, unable to retrieve their costs from government-regulated tariffs, accumulate debt and losses and cut purchases.
India plans to spend Rs.13.73 trillion to expand and upgrade its power systems in the five years to March 2017, much of the investment coming from generators including state-owned NTPC Ltd, Tata Power Ltd and Reliance Power Ltd. The nation, which has a capacity to generate almost 226 gigawatts, plans to add 118 gigawatts of capacity during the period, including 30 gigawatts of renewable energy, according to the Planning Commission.
Power Grid will invest Rs.2,220 crore in the year ending 31 March, compared with an earlier plan of Rs.2,000 crore,” Nayak said. “The company has so far raised Rs.8,000 crore of debt in the year started 1 April,” he said.
“Proceeds of the share sale, estimated at Rs.6,340 crore based on the last price, will help the company fund the equity portion of its investment plan for the next three years,” Nayak said.
“First-quarter profit at Power Grid, which reported earnings on 2 August, rose 20% to Rs.1,040 crore after it transmitted more electricity through its so-called 115,000 circuit-kilometer (71,472 circuit-mile) network. Sales rose 23% to Rs.3,560 crore. Power Grid plans to expand the network to 140,000 circuit-kilometers by March 2017,” Nayak said.
“The company is developing 11 high capacity transmission corridors to haul electricity from generation projects spread across more than eight states,” according to its website. Power Grid is also building a transmission system for Tata Power, which has set up a 4,000 megawatt project at Mundra in the western state of Gujarat, and Reliance Power, which is building a similar sized plant at Sasan in the central province of Madhya Pradesh.
“Power Grid’s project executions are timely and growth is stable,” Gupta of Kim Eng Securities said. “A change in the negative sentiments about the power sector can trigger an upgrade for the stock.”