Discom Losses In FY22 To Widen Beyond Pre-Pandemic Level, Says Crisil

Power distribution companies in India are expected to see their losses widen in the ongoing fiscal amid lower demand and higher costs, according to Crisil Ratings Ltd.

Discoms’ cash losses are expected to remain elevated at around Rs 46,000 crore in FY22 compared with the pre-pandemic levels of Rs 33,000 crore in FY20, Crisil said in the report. Debt is seen surging to Rs 5.3 lakh crore during the period.

The analysis is based on a study of 34 state discoms across 15 states, which account for over 80% of India’s power demand.

Inadequate tariff hikes, higher operating and interest costs, and lower revenue from commercial and industrial consumers—that pay around Rs 3-4 a unit more than agriculture and domestic users—are some of the key reasons why losses may rise.

Nationwide lockdowns imposed in the first half of last fiscal brought industrial activity to a standstill. That meant much lower demand from the high-paying commercial customers, Ankit Hakhu, director at Crisil Ratings, said in the report.

“In fiscal 2022, while industrial demand will recover with an expected recovery in industrial activity amid healthy GDP growth, forecast at 9.5% on-year, commercial demand will remain subdued as people remain cautious in stepping out of their homes,” he said.

“Consequently, we expect commercial and industrial consumers to account for a lower 48% of demand in fiscal 2022, compared with 51% in fiscal 2020.”

The lower contribution of the commercial and industrial segment in FY22 will constrain overall realisations for the discoms, according to Crisil. And the tariff hikes by just six of the 15 state discoms analysed would translate to a mere 1-2% increase in average realisations from FY20 levels.

Operating cost is also expected to rise 3% over the last fiscal due pricier coal and transportation, and a steady increase in the administrative costs, according to the report.

A more than 30% surge in interest costs is likely to further dent cash flow as discoms take on new debt under the Aatmanirbhar Bharat scheme to repay older dues of generation and transmission companies, the report quoted Aditya Jhaver, director at Crisil Ratings, as saying.

“This is a higher cost debt with interest cost around 50-100 basis points higher than the average cost of debt of discoms," he said. "Debt will also be taken to fund ensuing cash losses and capital expenditure. We expect debt to surge to Rs 5.3 lakh crore this fiscal."

The agency said the government support in the form of subsidy inflows and prior-period loss funding will provide some support to the discom cash flows, given that power distribution is critical for the country. “However, given the past track record of delay in receiving subsidies, we don’t expect any substantial increase in support in the current fiscal.”