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Utilities
Equity Research
News on tariff hikes positive, but will the momentum continue?
MSEDCL proposes tariff hike; joins other states
The Maharashtra discom (MSEDCL) has proposed an average tariff hike of
about 17% in September, and joined seven other states (c.34% of total
consumption) which have proposed or implemented tariff hikes averaging
18% over the last three months.
Step in right direction, but still falls short of required hikes
Although planned hikes by Maharashtra and Gujarat are not a surprise given
the discipline of these states in passing through higher costs, tariff hikes by
others are a step in the right direction, in our view. However, these rises fall
short of the required average tariff hike of 51% (per discoms) and 20% (per
regulator) for states to break even annually. In a few instances, the regulator
has deferred hikes to future years to prevent ‘tariff shock’ to end consumers.
Higher T&D losses and interest costs continue to be a drag
Our analysis of tariff orders suggests that key differences in hikes proposed
by discoms and approved by regulator are: 1) under-achievement of T&D loss
targets; 2) disallowance of interest on accumulated revenue gap. Although
hikes are positive, we believe disallowing the above will continue to have an
adverse impact on discoms, necessitating an equity infusion by some states.
Sustained tariff hikes needed, but will the momentum continue?
We believe sustained tariff hikes are required for improvement in the
finances of discoms, particularly those which still incur annual losses. With
17 states due for elections in 2012-13 and general elections scheduled in 2014,
we wonder whether this momentum will continue. Although steps such as 1)
a su moto action by the regulator and 2) automatic fuel adjustment ensure
less discretion of discoms in implementing future tariff hikes, we believe this
practice is yet to be tried or tested.
Utilization levels continue to remain uncertain; prefer Tata Power
With states such as TN, Rajasthan, UP, Haryana, AP (accumulated revenue
gap of US$29bn) continuing to incur annual losses, we believe their ability to
fund incremental power purchases (at higher costs) will remain uncertain and
utilization levels will be at risk. We prefer Tata Power in an uncertain
operating environment, as it: 1) has low sensitivity to utilization rates, fuel
costs and short-term interest rates; 2) implies a discount to its existing assets
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Utilities
Equity Research
News on tariff hikes positive, but will the momentum continue?
MSEDCL proposes tariff hike; joins other states
The Maharashtra discom (MSEDCL) has proposed an average tariff hike of
about 17% in September, and joined seven other states (c.34% of total
consumption) which have proposed or implemented tariff hikes averaging
18% over the last three months.
Step in right direction, but still falls short of required hikes
Although planned hikes by Maharashtra and Gujarat are not a surprise given
the discipline of these states in passing through higher costs, tariff hikes by
others are a step in the right direction, in our view. However, these rises fall
short of the required average tariff hike of 51% (per discoms) and 20% (per
regulator) for states to break even annually. In a few instances, the regulator
has deferred hikes to future years to prevent ‘tariff shock’ to end consumers.
Higher T&D losses and interest costs continue to be a drag
Our analysis of tariff orders suggests that key differences in hikes proposed
by discoms and approved by regulator are: 1) under-achievement of T&D loss
targets; 2) disallowance of interest on accumulated revenue gap. Although
hikes are positive, we believe disallowing the above will continue to have an
adverse impact on discoms, necessitating an equity infusion by some states.
Sustained tariff hikes needed, but will the momentum continue?
We believe sustained tariff hikes are required for improvement in the
finances of discoms, particularly those which still incur annual losses. With
17 states due for elections in 2012-13 and general elections scheduled in 2014,
we wonder whether this momentum will continue. Although steps such as 1)
a su moto action by the regulator and 2) automatic fuel adjustment ensure
less discretion of discoms in implementing future tariff hikes, we believe this
practice is yet to be tried or tested.
Utilization levels continue to remain uncertain; prefer Tata Power
With states such as TN, Rajasthan, UP, Haryana, AP (accumulated revenue
gap of US$29bn) continuing to incur annual losses, we believe their ability to
fund incremental power purchases (at higher costs) will remain uncertain and
utilization levels will be at risk. We prefer Tata Power in an uncertain
operating environment, as it: 1) has low sensitivity to utilization rates, fuel
costs and short-term interest rates; 2) implies a discount to its existing assets
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