Power stocks had rallied after the grand announcement of the debt recast of state electricity boards (SEBs), but that has petered out now because the familiar problems won’t go away. Scarcity of coal and gas continues to bite while parlous SEB finances weigh on power producers’ balance sheets.
India continues to add power plants, but these units lie dormant or are underutilized. Statistics from the Central Electricity Authority show that the country added 2,370 megawatts (MW) of capacity in the three months ended September on top of 5,206MW in the June quarter.
Yet, electricity generation in the second quarter grew a tepid 2.5% over a year ago compared with 5.1% in June and 8.6% in March. The reason for this is not unknown. Coal and gas scarcity continues to bite.
The plant load factor (PLF), or capacity utilization, at the country’s thermal power plants fell to 68.51% (year to date) compared with 73.98% at the end of June.
The situation is direr for gas-fired plants; PLF of gas plants slipped to 37.03% in September from 57.93% a year ago.
Unlike other sectors that are seeing falling consumption growth, the power sector demand is inelastic in nature; the peak power deficit hovers near 10%.
However, slowing electricity generation meant that net sales for seven of the largest listed power producers grew only 14.21% from a year ago in the September quarter, a comedown from the 20% growth in June and 27% in the March quarter. Note that this growth in revenue has been boosted to a large extent by hikes in tariffs.
One saving grace for power companies has been the decline in the prices of international coal. Even though a depreciating rupee lopped off some of this gain, cheaper foreign coal helped mitigate cost pressures to some extent. For instance, NTPC Ltd’s fuel costs in the September quarter accounted for 61.6% of net sales compared with 69.3% a year ago.
That helped boost operating profit to some extent and the gains trickled down to profit as well. NTPC, for instance, reported 29% profit growth while others such as Tata Power Ltd and Adani Power Ltd cut their losses.
But the problem of SEB finances continues to haunt power producers’ balance sheets, besides being another reason for slower generation growth.
Reliance Power Ltd’s trade receivables jumped 62% over the past six months, while PTC India Ltd’s spurted by one-fourth in the three months ended September.
Unless there is some movement in the actual implementation of the recast plan and improvement in the coal supply, the BSE Power index’s underperformance is here to stay.