Despite gloom all around, shares from the power and gas utility pack remained firm on Thursday on the bourses after the Union Cabinet late on Wednesday night approved financial support to revive stranded power projects.

Coming to the rescue of stranded gas-based power plants, the Centre has decided to come out with a mechanism for importing natural gas.

About 14,000 MW, with an investment of over ₹60,000 crore, which have no domestic fuel supply, faced immediate risk of becoming non-performing assets. In addition to these, about 10,000 MW of power plants are receiving limited quantity of domestic gas and most of them are operating at very low plant load factor. The power plants are both in the public as well as private sectors.

Among power generation companies, Torrent Power closed the day with gains of 3.23 per cent. It rose almost 10 per cent in early trade; GVK Power & Infrastructure ended the day with gains of 2.43 per cent at ₹8.02; in opening session, the stock touch a high of ₹8.17. However, Adani Power and Reliance Power could not hold to gains.

Relief for distribution cos

Among utilities and distribution companies, Gail (India) edged up 0.45 per cent, Petronet LNG moved up 1.28 per cent, Gujarat State Petronet rose 4.70 per cent and Indraprastha Gas climbed 0.96 per cent.

“Clearly, this announcement is positive for Torrent Power, as its power plants are one of India’s most efficient,” Kotak Securities said in a note and added that “though the companies will not be allowed to make any profits, it comes as a relief, as at least the interest and principal repayment for the stranded power plants will be taken care off.”

“Government will provide subsidy directly to the distribution companies for purchasing gas-based power. This will help the gas-based power plants to operate at a capacity utilisation of about 30 per cent and generate cash on their idle assets,” Morningstar analyst Piyush Jain said.

With the Cabinet Committee on Economic Affairs approving allocation of imported gas based on a reverse-bidding process, Torrent Power’s 1,200-MW gas-based power plant could start operations in the second half of 2015-16 (April-March), Dolat Capital said in a report. Based on the fact that the unit could start operations in the coming financial year, and possibly achieve a PLF of 30 per cent by 2016-17, Dolat Capital expects Torrent Power’s fair value to increase to ₹180 a share.

‘Worst days are over’

According to a Chennai-based independent analyst, “Most of the power stocks have been under pressure in the last few years. With the government clearly focussing on the power sector to revive the economy, one can surely assume that the worst days are over for the sector.” However, revival can take a longer period, he added quickly.

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