Thermal power generation in January-March this year increased 5.2%, better than the 3% increase in the year-ago quarter. But earnings of leading companies in the sector proved to be a dampener. NTPC Ltd reported a strong double-digit growth in profits. However, adjusted for non-recurring benefits and exceptional items, profits would have increased in the low to mid-single digits, point out analysts.

Similarly Tata Power Co. Ltd reported a record profit for the March quarter. But the profits were boosted by the reversal of a large impairment charge that it took earlier. The company’s performance otherwise was not encouraging due to higher losses at Mundra ultra mega power project and an impairment charge at Georgia hydropower project.

CESC Ltd’s performance did not impress either. Despite a double-digit growth in revenues, profits of the company dropped slightly, weighed down by low regulated income and losses at the retail division. Perhaps the biggest disappointment came from JSW Energy Ltd. The company reported a loss against the expectation of a profit due to higher fuel costs, lower realizations and provisions against receivables.

Overall, while the companies may be doing well in parts, the consolidated earnings provide no reason to cheer. The current quarter (April-June) started on a mixed note. Thermal power generation in April increased 3.4%. According to Elara Securities (India) Pvt. Ltd, volume growth at NTPC was relatively better at 9%.

But one cannot be assured if the better growth will translate into earnings. NTPC is facing fuel constraints at some of its plants. This is leading to outages (in terms of plant availability), resulting in under-recovery of fixed costs. According to the management, the fuel availability situation improved at two of the affected plants, though it is not clear when the issue will be resolved completely.

At the all-India level, 22 power plants are facing critical level coal stock (less than seven days) as of the third week of May, compared with 13 plants a year ago, data from the Central Electricity Authority show. In the event of continuing fuel constraints, the companies may as well resort to imported coal, which is expensive.

Meanwhile, supply constraints in a seasonally strong part the year are driving up the spot electricity tariffs. This is expected to benefit companies with free capacities that can sell power in the open market. But, as JM Financial Institutional Securities Ltd warns, this may not boost earnings of merchant power producers as they rely on imported coal, which currently are at their peak rates.

Overall, the March quarter results have been a dampener despite the steady growth in demand. International coal rates and improvement in domestic coal availability will determine future performance.