Discoms starting to show improvement under UDAY: analysts
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Mumbai: India’s ailing power distribution companies (discoms) have narrowed their losses and improved their operations because of Ujwal Discom Assurance Yojana (UDAY), a government bailout package, analysts said.
Improvement in operations of certain discoms is already visible via reduction in AT&C (aggregate technical and commercial) losses, power purchase cost, narrowing gap between cost and revenue and interest cost savings, Edelweiss Securities analysts Kunal Shah, Nilesh Parikh and Prakhar Agarwal said in a 30 March report.
Out of the Rs48,800 crore discom debt, about Rs23,900 crore was repaid till the third quarter of FY17 under UDAY and another Rs9,000 crore was repaid by Tamil Nadu recently, resulting in 65% of discom debt being repaid, the analysts wrote in the report.
In the 18 months since its inception, the scheme has been “undeniably successful” in achieving its objective of restoring financial health of discoms by transferring almost 75% of their debt to the state governments and reducing their interest cost burden on the remaining 25% debt, consultant Bridge To India said in a note on Monday.
“Discom financials were in a spectacular mess back in 2015 with aggregate debt of Rs4.3 trillion and annual losses of Rs60,000 crore at the end of March 2015. Out of the total debt of Rs3.8 trillion attributable to the 26 UDAY states and union territories, 61% has been already transferred to state governments and/or refinanced in the form of state government guaranteed bonds,” Bridge to India said in the note. “Another 10% is expected to be similarly restructured shortly. These measures alone are expected to reduce annual aggregate interest cost burden by Rs16,000 crore ($2.4 billion) (down 65%).”
With improved cash flows, the power sector may witness revival in demand by the discoms, but incremental benefits could accrue over the next two-three years, Emkay Global Financial Services Ltd said in a 3 April note.
“The determined efforts by few states to improve its operational and collection efficiency in order to bring down losses and improve its financial health are showing results with majority of the states (barring Rajasthan) have managed to bring down AT&C losses over FY16,” the Emkay note said.
Karnataka, Haryana and Rajasthan have shown remarkable improvement in their operations as they have managed to magnify the benefit of interest cost reduction by sharp operational improvement, ICICI Securities analysts Prakash Gaurav Goel and Apoorva Bahadur wrote in a 28 March report.
So far, 25 states and one Union territory have joined UDAY, with West Bengal and Odisha yet to join. State discoms had collectively borrowed more than Rs4 trillion till the end of March 2015. The government in 2015 launched UDAY for operational and financial turnaround of power discoms.