Stock Fundamentals

Power: Losing charge

Nithya Palani | Updated on February 18, 2018 Published on February 18, 2018

“We will call for bids to acquire 1,000 MW of hydropower projects within a month,” says the company CMD, Gurdeep Singh.

Poor demand for power and pressure on tariff rate have pulled down earnings

Lower demand for power from ailing discoms, domestic coal shortages and pressure on tariff rates continued to weigh on earnings of power generation companies in the latest December quarter.

NTPC reported a 10.4 per cent Y-o-Y increase in power generation to 67.8 billion units of power in the period. But this was only due to stronger demand for thermal generation owing to poor generation in renewables, and not due to any meaningful recovery in overall industry demand.

In fact, the uptick in thermal generation had led to shortage of coal for the company. The management stated that it had faced constraints in securing coal supplies for units, which led to under-recovery of fixed costs (disincentives) of ₹546 crore during the December quarter.

The plant availability factor in coal-based plants fell by 8.5 percentage points to 83 per cent in the December quarter. Thus, despite an increase in generation and revenues growing by 7.1 per cent Y-o-Y to ₹20,774 crore, higher fuel cost led to a 4.4 per cent Y-o-Y decline in adjusted PAT.

The average tariff of NTPC for the nine months ending December 2017 has fallen to ₹3.21 per kWh from ₹3.28 kWh in the corresponding period last year. NTPC’s operating margin reduced to 25.1 per cent in the December quarter against 26.9 per cent earlier because of increased fuel cost and employee expenses.

Adani Power too reported weak performance in the December quarter due to reduced power generation owing to domestic coal shortages. The company’s consolidated revenues fell by 10.8 per cent Y-o-Y to ₹4,844 crore. Units sold fell by 14.9 per cent Y-o-Y to 12.6 billion.

The plant load factor (PLF) of major companies fell in the December quarter due to the shortage of domestic coal. Adani Power’s PLF reduced to 58 per cent in the December quarter from 69 per cent in the same quarter last year. PLF fell due to lower domestic coal availability in Tiroda and Kawai plant and the forced outage in the Udupi plant.

PLF has also been reducing on account of customer backdowns and maintenance shutdowns over the past few quarters. Adani Power has been incurring losses in the past few quarters on account of the Mundra plant that operates on imported coal. The imported coal prices have increased due to change in regulations overseas. Claims for compensatory tariff were declined by the Supreme Court on April 11, 2017, which led to losses at the Mundra plant. Adani Power’s operating margin decreased to 15 per cent in the December quarter, a steep 900 bps fall Y-o-Y owing to higher fuel cost, arrears of transmission charges and lower fixed capacity charge.

The company recognised compensatory revenue to the tune of ₹681.4 crore during the nine months ended December 2017 due to the change in law for shortfall in domestic coal pursuant to CERC’s interim order in September 2017.

Strong performance from Tata Power’s renewable portfolio, higher plant availability factor aiding Mundra’s operational performance and an adverse tariff order and lower plant availability at Maithon dragging overall EBITDA, were the key highlights of the company’s December quarter performance.

Tata Power’s consolidated revenues increased by 5.7 per cent Y-o-Y to ₹7,096 crore. This was led by 10 per cent growth in standalone business and 21 per cent and 25 per cent growth in solar and renewable portfolio, respectively. Maithon Power, one of the subsidiaries, however saw revenues decline by 39 per cent Y-o-Y. Consolidated EBITDA fell 10 per cent Y-o-Y to ₹1,355 crore , primarily due to the adverse regulatory order at Maithon. There was an impact of ₹97 crore on account of the adverse tariff order and ₹19 crore on account of lower plant availability .

At the Mundra plant, under-recoveries increased due to the rise in coal prices. However, the plant availability factor increased to 79 per cent this December quarter from 77 per cent during the same quarter last year — as a result, EBITDA increased by 139 per cent Y-o-Y to ₹79 crore in the December quarter at Mundra. Adjusted loss declined to ₹213 crore from ₹244 crore in the same quarter last year.

The company’s renewables portfolio (renewables consolidated), which includes Walwhan Renewables Energy, wind assets and Tata Power Renewable Energy (TPREL), clocked a healthy EBITDA of ₹1,468 crore .

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Published on February 18, 2018
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