Power distribution companies (discoms) already have low EBITDA margin and Ind-Ra expects an adverse impact on consumer collection efficiency and tariff subsidy realisation due to Covid-19 could exacerbate the liquidity stress.

India Ratings and Research (Ind-Ra) estimates a fall in EBITDA by ₹21,000 crore in FY21 for the 41 discoms it analysed.

The Reserve Bank of India notified Covid-19 moratorium would have aided in conserving some liquidity. The ₹1,20,000 crore debt-funded liquidity scheme for discoms would significantly address the liquidity issues in making payments to generation and transmission companies during FY21.

However, the disbursement of the entire liquidity package within FY21 is critical for preventing significant elongation in the payable period of discoms. The average tariff hike from FY18-FY21 was 2-3 per cent and tariff hikes for FY21 have been muted.

Tariff hikes in the next 12 months could be uncertain, given the economic situation in the States, thereby the best avenue to reduce the gap between average cost of supply (ACS) and average revenue realisation (ARR) could be sparsely used.

The additional interest service liability due to availing the liquidity package, if not met by the state governments, would be a stress on the cash flows of weak discoms. Out of the liquidity scheme, the sanctioned and disbursed amount was ₹70,590 crore and ₹24,740 crore, respectively, on September 14, 2020.

Disbursements

Disbursements will be in two tranches, the first tranche will be disbursed after the receipt of a State government guarantee and an agreement outlining the plan for realising subsidy dues and pending receivables and the second tranche will be released subject to submitting a plan to bring down their aggregate technical and commercial losses and ACS-ARR gap over the next three-to-four years.

Grading for the 41 discoms indicates that their financial profile declined in FY19. The proportion of energy transacted by weaker discoms increased to 45 per cent in FY19 out of 896 billion units (BU) from about 31 per cent in FY18. This implies that the counterparty risk of generation and transmission companies increased considerably in FY19.

Ind-Ra has published a ready reckoner on the financial health of 41 discoms in 20 States, which highlights their leverage, profitability, operational efficiency, receivable and payable days and historical tariff hikes.

Ind-Ra has also estimated the liquidity vulnerability indicator for FY21. This provides a relative sense of liquidity stress among the analysed discoms and may be considered as an input for assessing the risk of delays in revenue payments for generation and transmission companies.

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