X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Is the worst behind India's power sector? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Is the worst behind India's power sector?
Jul 3, 2015

India has made a reasonable progress in adding power generation capacities. As cited by the power minister the installed capacity for power generation increased 8.4% in the last year. Previously the power plant units used to remain idle due to scarcity in the supply of coal. This constraint was eased by the government through auctioning of coal mines. The assurance of coal linkages has brought life back to the power generation units. However the worst is hardly behind the sector as it continues to deal with demand supply gap and distribution losses.

Demand Scarcity

Due to low demand for power, India's average plant load factor (PLF) has dropped to a 15 year low at 65.1%. The new Central Electricity Regulatory Commission (CERC) norms provides incentives to the generation and distribution companies based on their PLF. Lower PLF will lead to lower incentives and will have an impact on the net profits of the companies in the sector.

Distribution losses

State Electricity Board (SEB) is involved in the distribution of power. They procure power from the power generation companies and distribute it to the consumers. They have accumulated losses of Rs 2500bn and lose Rs 700bn every year as per the first year report card of National Democratic Alliance (NDA) government. The SEB's do not have enough resources with them to enter into Power Purchase Agreement (PPA) with the power generation company. They have been partially responsible for the weak demand prevailing in the power sector. The past 24 months have seen no power purchase agreement, due to the poor financial health of the distribution companies. Moreover the distribution arm of SEBs, succumb to the political pressure and are not able to conduct tariff revisions.

There are huge Aggregate Technical & Commercial (AT&C) losses posted by distribution companies due to outright theft, unmetered supply to the farmers and lack of technological upgradation. As per Central Electricity Authority (CEA) report, theft alone causes loss of about RS 200bn annually.

The way ahead

Certain ways to curtail losses would be to open the power distribution sector to private sector and have free market competition. Radical reforms would be required to revive the state run SEBs and the power sector at large.

Power financing companies like PFC and REC will also have to sustain the quality of their assets to be able to fund long term generation projects.

Meanwhile investors need to ensure that their selection of stocks, in a ROE regulated sector like power, is based on not just the companies' growth prospects but also profitability.

Equitymaster requests your view! Post a comment on "Is the worst behind India's power sector?". Click here!

  

More Views on News

NTPC: Higher Tax Provision Impacts Profits (Quarterly Results Update - Detailed)

Mar 30, 2017

NTPC declared results for the quarter ended December 2016. The company reported revenue growth of 10.9% while profits declined by 7.5% YoY.

NTPC: Capacity Addition a Key to Earnings Going Ahead (Quarterly Results Update - Detailed)

Nov 23, 2016

NTPC declared results for the quarter ended September 2016. Here is our analysis of the results.

Power Grid: Robust Performance Continues (Quarterly Results Update - Detailed)

Nov 23, 2016

Power Grid Corp (PGCIL) declared its results for the quarter ended September 2016. The company reported a revenue and profit growth of 28% YoY and 32% YoY respectively.

More Views on News

Most Popular

Alert: Pharma Stocks Are About to Shoot Up - And a Superb Stock for Trading(Profit Hunter)

Jun 13, 2018

The ailing pharma stocks are bouncing back to health. Read this to find out the best way to profit from them.

Will You Dump Your Client if You're Busy? Inox Wind's Auditor Just Did...(The 5 Minute Wrapup)

Jun 14, 2018

After Inox Wind, you may see more auditors resigning And the reasons can be as funny as they can get.

GST Will Not Solve Problem of High Prices of Petrol and Diesel(Vivek Kaul's Diary)

Jun 13, 2018

Though it will bring transparency in their pricing and that in itself will be a welcome move.

Should You Invest In Mirae Asset Healthcare Fund?(Outside View)

Jun 15, 2018

Mirae Asset Mutual Fund launches NFO - Mirae Asset Helathcare Fund.

Has the Market Bottomed Out?(Sector Info)

Jun 11, 2018

The yield spread is an effective barometer that can indicate the direction the markets are headed.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE POWER


Jun 22, 2018 (Close)

S&P BSE POWER 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS