Power: public enterprises hold fort

Despite inexpensive valuations of private firms, analysts continue to prefer state power utilities


While adverse orders at its Mumbai business and cost under-recovery at the Mundra plant dented Tata Power profit, Adani Power was hit by low generation and revenue. Photo: Ramesh Pathania/Mint
While adverse orders at its Mumbai business and cost under-recovery at the Mundra plant dented Tata Power profit, Adani Power was hit by low generation and revenue. Photo: Ramesh Pathania/Mint

Barring minor slippages, public sector enterprises NTPC Ltd and Power Grid Corp. of India Ltd continued to deliver superior performances, compared with their private peers. Power Grid’s net profit grew by an impressive 33% in the June quarter, though capacity additions lagged Street estimates. NTPC clocked strong volumes, while hydro power generator NHPC Ltd saw healthy revenue growth, thanks to incentive income.

Performances of private power firms Tata Power Co. Ltd and Adani Power Ltd, on the other hand, continued to be affected by one-offs. Adverse orders at its Mumbai business and cost under-recovery at the Mundra plant dented Tata Power profit. Adani Power was hit by low generation and revenue.

Reliance Power Ltd’s revenue fell slightly from a year ago. JSW Energy Ltd’s numbers were boosted by the acquisition of hydro power assets; otherwise, the firm continues to see pressure on realizations. CESC Ltd reported a steady performance. Revenue rose 12%, helped by better power off-take in Kolkata distribution. But profit remained flat due to high fuel costs.

Overall, public sector utilities drove earnings. Private firms are seeing incremental positives, such as CESC’s Chandrapur plant tying up a power purchasing agreement (PPA), JSW Energy Ltd getting short listed for a Karnataka PPA and Adani narrowing losses.

But the firms are yet to reach a stage where their earnings will begin to see positive momentum. For instance, Adani Power and Tata Power’s compensatory tariff issues for their plants are yet to be settled; CESC’s Chandrapur plant still has free capacities that need to be tied up and PPA finalization for JSW Energy is awaited. So, despite inexpensive valuations of private firms, analysts continue to prefer state power utilities.

NTPC faces demand concerns and Power Grid faces project commissioning worries. But the issues are seen to be transitory and the firms are preferred for steady financial performance. “We believe NTPC’s PLFs (plant load factors) will be impacted, to an extent, as we enter a seasonally weak quarter for thermal power. Power Grid, however, is expected to have higher commissioning in coming quarters to meet full-year targets. Merchant prices continue to trend lower (including south) even as demand remains a little weak for Q2,” Edelweiss Securities Ltd wrote in a note to clients. “We prefer regulated players Power Grid and NTPC.”

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