Absence Of Demand Revival May Hurt Power Utilities In January-March 

The absence of revival in industrial activity and subdued overall demand is expected to weigh on the earnings of most power utilities for the three months ended March.

The industry’s plant load factor, or output compared to its overall production capacity, is likely to fall to a record low.

Power demand grew a mere 2.5 percent in the last financial year and the deficit is close to zero. Weak industrial expansion and poor financial health of state distribution companies could explain a slowdown in demand, according to a report by JPMorgan.

Power utilities are expected to turn around in the next financial year 2018-19 since the benefits of initiatives taken by the government – UDAY debt recast for distribution companies, auctioning of coal and gas linkages and steps to unblock the policy logjam – may take some time to reflect in the financials of these companies.

Earnings Expectations

The aggregate of Bloomberg consensus estimates for seven widely tracked power companies for the three months ended March are as follows:

• Revenue is expected to grow 4.8 percent in the March-ended quarter compared to the year-ago period.
• Earnings before interest, tax, depreciation and amortisation is likely to decline 18.1 percent.
• Net profit is expected to fall 14 percent.
• Power generation is expected to increase by 4.2 percent year-on-year to Rs 28,610 crore.
• Plant load factor is likely to fall to 47.4 percent from 50.8 percent in the year-ago period.

Strained Financials

Only three out of the top seven power companies – Power Grid Corporation of India Ltd., Tata Power Ltd. and PTC India Ltd. – are expected to report a profit growth in the March quarter.

Power Grid’s profit is seen rising 28.8 percent on capital expenditure of Rs 21,000 crore in the trailing four quarters. Benefits of a lower base, commissioning of 239-megawatt wind projects in Karnataka and Andhra Pradesh, along with a strong growth in renewables, is expected to help PTC India’s profit grow.

Tata Power may remain profitable since the company is no longer including financials from Indonesian mines.

Meanwhile, lower revenue and an increase in average fuel costs may weigh on the profitability of JSW Energy. Higher base and rising fuel costs is also expected to eat into NTPC’s profit, which is expected to fall by 10.2 percent drop.

What To Watch

NTPC: Plant availability factor, or the proportion of time for which it was able to generate power, is expected to be more than 83 percent for almost all the power plants, barring Barh and Badarpur. Clarity on impact of fuel quality, if any, and final order of the Delhi High Court on new tariff regulations for FY14-19.

Reliance Power: Fuel supply at its plant in Rosa, Uttar Pradesh and the status of Bangladesh projects.

Tata Power: Street will watch for the impact of the Supreme Court judgement on compensatory tariff on its financials.

PTC India: Outlook for capacity addition in renewables and margins under wind auction power purchase (PPA) and supply agreements.

CESC: PPA For Dhariwala thermal power plant in Chandarpur, Maharashtra along with clarity on penalty for its coal mine in Sarasthali, Odisha.

(These expectations have been compiled from reports of IDFC Securities, Elara Securities, Ambit Capital and Emkay Global Financial Services)