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Motilal Oswal Report
The utilities sector is grappling with issues pertaining to mounting receivables, a fact, which is being continuously highlighted by incremental data. As of May-end, outstanding over-dues to generators (based on government data) was approximately 20% higher (versus that at end-March 20). Note that at end-FY20, receivables were already highly elevated.
Further, the audited numbers for distribution companies as provided by the Power Finance Corporation highlights the ongoing system inefficiencies. In this context, the Rs 900 billion relief package for discoms though much needed may actually do little to solve the problem if incremental dues crop up.
Companies within our utilities universe remain attractive; however, the ongoing losses at discoms are a point of concern. Unless discoms turn profitable, issues pertaining to delayed payments and curtailed demand could continue. This in turn would be a key overhang for the generation sector. discoms are in a circular loop due to their weak financial health, in our view. Addressing operational issues of these discoms, thus, is of great urgent importance.
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