The power sector had been the toast of the primary market for some months after the financial crisis. Five firms, including heavyweights such as NTPC Ltd and Power Grid Corp. of India Ltd (PGCIL), raised money in 2010 alone.
In the government’s five-year plans, this sector has typically been allotted the maximum funds—almost one-third of the total for the last two periods.
Now Murphy’s Law has hit the sector; power shares have suffered enormously. Since the market attained its high in November, such shares have dipped as much as 39% (for JSW Energy Ltd) and 35% (KSK Energy Ventures Ltd).
Even defensive bets such as PGCIL and NTPC, which being state-owned have assured returns, have not found many buyers. The former shed 3.36% and NTPC 7.5%, though it might be said in their favour that they outperformed the benchmark Sensex index.
All that could have gone wrong seems to have gone wrong. For one, firms are facing challenges of sparse fuel supply and a rise in coal prices.
True, Coal India Ltd has mostly spared power firms from a hike in prices, but has recently cut its volume guidance for the next two years. The 10-12% that local firms import from overseas markets has become dearer by 25% over the last quarter.
Second, capacity additions are not happening at the desired rate, whether it be due to land acquisition problems or delays in environmental clearances. According to the Central Electricity Authority, only 35% of the projects planned under the 11th Plan that ends in March 2012, have been commissioned so far.
Third, even if the projects had been executed, state electricity boards (SEBs) may not have been in a position to take delivery of this power.
According to estimates by India Infoline Ltd, the combined losses of SEBs worsened by nearly 40% from a year ago to Rs70,000 crore in fiscal 2010.
Also, in many parts of the country, the transmission and delivery infrastructure is incomplete and insufficient, adding further pressure on power companies.
Finally, with supply increasing faster than demand, spot power rates have halved to around Rs2.50 per kilo Watt hour (kWh) in the third quarter of this fiscal compared with the first quarter.
Still, that is where the light shows at the end of the tunnel. March-June is historically the best season for power tariffs and spot rates are expected to move to Rs4.60 per kWh in the next three months. But that alone may not be able to reignite the spark in power stocks.