Jan 1, 2004|
Power stocks gained substantially in 2003. As can be seen from the graph below, Rs 100 invested in BSE-Sensex" style="color:blue" target="_blank">BSE-Sensex would have fetched around Rs 172 where as Rs 100 invested in stocks like Neyveli Lignite, Tata Power and Reliance Energy would have resulted in Rs 280, Rs 281 and Rs 229 respectively.
Let's have a look at the reasons for the rally in the power stocks.
Lot of optimism in the Indian power sector came as a result of the recent Electricity Act. With the relaxation in licensing norms, the path for setting up new generation capacities has been cleared. Generation companies have right to take up distribution of power and visa-versa. Generation companies have been paid back the dues for power supplied to SEBs. Independent power regulatory authority has been set up to ensure the smooth functioning of the power sector. As a result, the stocks of both the private and state owned companies gained significantly on the bourses.
With all these measures coming into place, the confidence level of the generation companies has got a boost. Reserve Bank of India (RBI) has already issued bonds to government power companies like NTPC and Neyveli Lignite in lieu of dues against various SEBs. As a result, all the major power generating companies have huge expansion plans in the pipeline.
The government has plans to add another 40,000 MW capacity in the eleventh plan. Out of which, NTPC alone will be adding 20,000 MW. State owned Neyveli Lignite also has big plans going ahead. The company's expansion plans include a Thermal Power Plant at Tuticorin with a capacity of 1,000 MW as a joint venture with Tamil Nadu Electricity Board (TNEB). Apart from Tamil Nadu, the company is in talk with various state governments to add another 3,500 MW. Neyveli's additional 210 MW thermal power generation project is expected to commence operation by the end of FY04.
On the other hand, private sector companies like Tata Power and Reliance Energy are also on track to take advantage of the improved sector scenario. Tata Power plans to add another 1,500 MW generation capacity by FY09. Where as Reliance Energy has plans to add another 3,000 MW over next 4 years. The government's endeavor to reduce T&D losses has encouraged the private players to increase the power distribution circles.
The outlook for the Indian power sector remains positive in view of the government plans to add 150,000 MW of generation capacity over the next decade (including 50,000 MW hydro capacity) in order to bridge the current demand-supply gap. This is almost 1.5x current capacity. Also, if India has to achieve a consistent 7% GDP growth, then power generation has to grow by 8%-9% per annum. Thus, demand is not an issue in this industry. However, poor health of the SEBs has kept both private and public investments away for some time now. While it is clear that power sector is a sunrise industry in India going forward, the pace of the growth depends largely on power sector reforms.
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