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UBS Investment Research
India Power Utilities
T amil Nadu asks for a SEB bailout
Event: Tamil Nadu requests Rs400bn bailout from central government
According to media reports, the newly elected state government of Tamil Nadu has
sought a special bailout package of Rs400bn from the central government for the
state-run power distribution firm, Tamil Nadu Generation and Distribution
Corporation (Tangedco). This Rs400bn is part of a total package of Rs1,800bn
requested by Tamil Nadu.
Impact: central government unlikely to agree, tariff hike more likely
As per the latest data available, Tamil Nadu’s state electricity board (SEB) is one
of the biggest loss-making SEBs in the country (contributing ~20% of total
financial losses of all SEBs put together). We believe the demand is only a
pressure tactic by the Tamil Nadu government; a tariff hike is imminent in the state
as there are no assembly or parliament elections scheduled for the next two-and-ahalf
years. We think that Tamil Nadu SEB is unlikely to default in the short term.
Action: we prefer low-risk names such as Power Grid
In a scenario of increasingly negative newsflow on SEB financial difficulties, we
think it would be prudent for investors to look at stocks that are not directly
impacted by issues in the generation sector. We believe that Power Grid, which is a
defensive choice in a natural monopoly sector, will be a key beneficiary of growth
in transmission and is a good option in the space.
Our top picks are Power Grid and Lanco
We prefer Power Grid and Lanco, both rated Buy. We also have Buy ratings on
NTPC, Tata Power, and Reliance Infra.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Power Utilities
T amil Nadu asks for a SEB bailout
Event: Tamil Nadu requests Rs400bn bailout from central government
According to media reports, the newly elected state government of Tamil Nadu has
sought a special bailout package of Rs400bn from the central government for the
state-run power distribution firm, Tamil Nadu Generation and Distribution
Corporation (Tangedco). This Rs400bn is part of a total package of Rs1,800bn
requested by Tamil Nadu.
Impact: central government unlikely to agree, tariff hike more likely
As per the latest data available, Tamil Nadu’s state electricity board (SEB) is one
of the biggest loss-making SEBs in the country (contributing ~20% of total
financial losses of all SEBs put together). We believe the demand is only a
pressure tactic by the Tamil Nadu government; a tariff hike is imminent in the state
as there are no assembly or parliament elections scheduled for the next two-and-ahalf
years. We think that Tamil Nadu SEB is unlikely to default in the short term.
Action: we prefer low-risk names such as Power Grid
In a scenario of increasingly negative newsflow on SEB financial difficulties, we
think it would be prudent for investors to look at stocks that are not directly
impacted by issues in the generation sector. We believe that Power Grid, which is a
defensive choice in a natural monopoly sector, will be a key beneficiary of growth
in transmission and is a good option in the space.
Our top picks are Power Grid and Lanco
We prefer Power Grid and Lanco, both rated Buy. We also have Buy ratings on
NTPC, Tata Power, and Reliance Infra.
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