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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
The sector is facing lot of hurdles leading to growth pains for many of its players as well for the
companies related to the industry. Though the demand for power continues to soar, the progress
on capacity additions remains modest. The power ministry has already indicated the only half the
required generation capacity will be in place by the end of the year.
Project execution and power generations remain poor mostly due to difficulties in establishing
coal linkages. Adding to the problems are the concerns regarding the solvency of state
Electricity boards which are significant clients for these power companies.
Indian power companies have slowed down project implementation and are unable to operate
new plants at targeted capacity, which may lead to defaults of over Rs 135,000 crore from the
sector that is battling low tariffs, scarce fuel and land acquisition problems.
Lower tariffs is a concerns as the companies have to offset the higher coal prices leading to
higher power purchase cost and other expenses which may further put pressure on the margins for
the company.
Land acquisition problems or clearance problems for the coal blocks is a major hurdle for the
sector. The land acquisitions bill may be passed in the winter session.
The early signs of financial stress due to these concerns are evident from the fact that up to 50%
of sanctioned power sector loans are lying around without drawdowns. The strain and slippages in
funds lent to the power/infrastructure sector has been caused by project execution milestones
being missed due to problems in fuel linkages and clearances. This has resulted in tighter norms
for disbursement and banks are getting more cautious on incremental exposure in view of these
uncertainties.
The situation becomes worse as major Indian banks are close to hitting their group exposure limits
for power companies fixed by the Reserve Bank of India. As the power sector accounts for almost
16 per cent of the total industrial credit of Indian banks.
The PLF’s for most of the companies are declining mainly due to lack of raw materials and
lower demand from merchant power. Specifically Thermal PLF’s have declined as coal linked
plants and and gas based plants operated at lower levels where as growth was seen in the hydro
generation segment. CERC regulations focus on PLF of 85% while allocating projects as the PLF’s
are declining, many companies are facing the challenge of maintaining these levels of PLF’s.
Unless these issues are resolved or any government policy action is brought in the headwinds for
the sector are to continue for some time now. The sector as a whole has been corrected
downwards 36% from the Oct 2010 highs till date. Going forward the weakness in the sector is to
continue.
Companies like NTPC, Tata Power, Adani Power and Reliance power look weak, while NHPC
looks good on longer term perspective. The business model for NHPC is different with
focus on hydro power generation which is a growing need of an hour as the generation
capacity is skewed towards thermal power. NHPC will also not be influenced by the on
going concerns of thermal segment directly. We already have coverage on the stock with a
price target of Rs. 33.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
The sector is facing lot of hurdles leading to growth pains for many of its players as well for the
companies related to the industry. Though the demand for power continues to soar, the progress
on capacity additions remains modest. The power ministry has already indicated the only half the
required generation capacity will be in place by the end of the year.
Project execution and power generations remain poor mostly due to difficulties in establishing
coal linkages. Adding to the problems are the concerns regarding the solvency of state
Electricity boards which are significant clients for these power companies.
Indian power companies have slowed down project implementation and are unable to operate
new plants at targeted capacity, which may lead to defaults of over Rs 135,000 crore from the
sector that is battling low tariffs, scarce fuel and land acquisition problems.
Lower tariffs is a concerns as the companies have to offset the higher coal prices leading to
higher power purchase cost and other expenses which may further put pressure on the margins for
the company.
Land acquisition problems or clearance problems for the coal blocks is a major hurdle for the
sector. The land acquisitions bill may be passed in the winter session.
The early signs of financial stress due to these concerns are evident from the fact that up to 50%
of sanctioned power sector loans are lying around without drawdowns. The strain and slippages in
funds lent to the power/infrastructure sector has been caused by project execution milestones
being missed due to problems in fuel linkages and clearances. This has resulted in tighter norms
for disbursement and banks are getting more cautious on incremental exposure in view of these
uncertainties.
The situation becomes worse as major Indian banks are close to hitting their group exposure limits
for power companies fixed by the Reserve Bank of India. As the power sector accounts for almost
16 per cent of the total industrial credit of Indian banks.
The PLF’s for most of the companies are declining mainly due to lack of raw materials and
lower demand from merchant power. Specifically Thermal PLF’s have declined as coal linked
plants and and gas based plants operated at lower levels where as growth was seen in the hydro
generation segment. CERC regulations focus on PLF of 85% while allocating projects as the PLF’s
are declining, many companies are facing the challenge of maintaining these levels of PLF’s.
Unless these issues are resolved or any government policy action is brought in the headwinds for
the sector are to continue for some time now. The sector as a whole has been corrected
downwards 36% from the Oct 2010 highs till date. Going forward the weakness in the sector is to
continue.
Companies like NTPC, Tata Power, Adani Power and Reliance power look weak, while NHPC
looks good on longer term perspective. The business model for NHPC is different with
focus on hydro power generation which is a growing need of an hour as the generation
capacity is skewed towards thermal power. NHPC will also not be influenced by the on
going concerns of thermal segment directly. We already have coverage on the stock with a
price target of Rs. 33.
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