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India Equity Research Reports, IPO and Stock News
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● Our study of the recently released FY10 financial and operating
performance data of SEBs suggests continuation of a weak trend
as cash losses (post subsidy realised) increased by 17% to Rs384
bn (US$7.8 bn) during FY10. Cash losses are concentrated in a
few states such as Rajasthan, Tamil Nadu, UP, MP and J&K.
● Tariff increased by 2.3% in comparison to a 3.8% increase in
power purchase cost during FY10 resulting in negative spread (ex
subsidy) increasing by 9% to Rs0.86/kWh. AT&C losses in FY10
reduced by just 0.59% and continue to remain high at 27.15%.
● Losses and inadequate subsidy payments resulted in net worth of
SEBs being eroded by 40% in FY10. On the other hand,
incremental loans of Rs659 bn (up 27% YoY) were taken during
FY10 to help meet cash needs, resulting in gearing now at 21x.
● Recent tariff hikes by various states is a step in the right direction
but we note that the quantum of hikes (4-20%) taken by ailing
states is far inadequate in comparison to the hikes required (16-
106%). Further, SEBs’ creditor cycle increased by 6% to 84 days
in FY10, indicating delayed payments to power generating
companies. We thus stay cautious on the sector pending reforms.
Our study of the recently released FY10 financial and operating
performance data of SEBs suggests continuation of a weak trend.
Spread between tariff and power costs continues to widen
One of the key issues facing SEBs is that their tariff hikes have been
inadequate in comparison to the rise in power purchase costs,
resulting in a negative spread. Also, negative spreads are increasing
over the years. Tariffs increased by 2.3% in comparison to a 3.8%
increase in power purchase cost during FY10 resulting in negative
spread (without subsidy received) increasing by 9% to Rs0.86/kWh.
Poor progress on AT&C loss reduction
Most of the SEB reforms are focussed on reducing AT&C losses. Yet,
overall AT&C losses in FY10 reduced by just 0.59% and continue to
remain high at 27.15%. AT&C losses are particularly high (over 30%)
in the states of Madhya Pradesh, Chattisgarh, Orissa, Uttaranchal,
Uttar Pradesh, Rajasthan and West Bengal.
Subsidy payments from states continue to be inadequate
Despite the Electricity Act requiring states to provide subsidies to their
respective SEBs for meeting the social/political objective of providing
free or subsidised power to the agricultural and below poverty line
residential consumers, SEBs don’t get paid for their subsidy
entitlements. The problem continues to be acute in the large states of
Rajasthan, Andhra Pradesh and Karnataka. Overall in FY10, SEBs
received 56% of their subsidies due vs 54% during FY09.
Cash losses post subsidies increased 17% YoY
Led by above issues, SEBs’ cash losses (post subsidy realised)
increased by 17% to Rs384 bn (US$7.8 bn) during FY10. Cash losses
have been concentrated in a few states such as Rajasthan, Tamilnadu,
Uttar Pradesh, Madhya Pradesh and J&K. However, Maharashtra has
been able to turn into marginal cash profit of Rs1.3 bn in FY10 from a
cash loss of Rs26.8 bn in FY09.
Gearing is now steep at 21x
On one hand, losses and inadequate subsidy payments have resulted
in net worth of SEBs being eroded by 40% in FY10, despite
continuous investments in SEBs’ share capital (Rs159 bn in FY10).
On the other hand, incremental loans of Rs659 bn (up 27% YoY) have
been taken during FY10 to help meet cash needs, resulting in gearing
now at 21x.
Recent tariff hikes are positive but inadequate
Certainly recent tariff hikes taken by various states is a step in the
right direction but we note that the quantum of tariff hikes (4-20%)
taken by ailing states are far inadequate in comparison to the hikes
required (16-106%) in order to eliminate their existing losses (further
hikes would be needed to meet rising power purchase costs). Besides,
SEBs’ creditor cycle has increased by 6% to 84 days in FY10
indicating delayed payments to power generating companies. We thus
continue to remain cautious on the sector pending reforms.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Our study of the recently released FY10 financial and operating
performance data of SEBs suggests continuation of a weak trend
as cash losses (post subsidy realised) increased by 17% to Rs384
bn (US$7.8 bn) during FY10. Cash losses are concentrated in a
few states such as Rajasthan, Tamil Nadu, UP, MP and J&K.
● Tariff increased by 2.3% in comparison to a 3.8% increase in
power purchase cost during FY10 resulting in negative spread (ex
subsidy) increasing by 9% to Rs0.86/kWh. AT&C losses in FY10
reduced by just 0.59% and continue to remain high at 27.15%.
● Losses and inadequate subsidy payments resulted in net worth of
SEBs being eroded by 40% in FY10. On the other hand,
incremental loans of Rs659 bn (up 27% YoY) were taken during
FY10 to help meet cash needs, resulting in gearing now at 21x.
● Recent tariff hikes by various states is a step in the right direction
but we note that the quantum of hikes (4-20%) taken by ailing
states is far inadequate in comparison to the hikes required (16-
106%). Further, SEBs’ creditor cycle increased by 6% to 84 days
in FY10, indicating delayed payments to power generating
companies. We thus stay cautious on the sector pending reforms.
Our study of the recently released FY10 financial and operating
performance data of SEBs suggests continuation of a weak trend.
Spread between tariff and power costs continues to widen
One of the key issues facing SEBs is that their tariff hikes have been
inadequate in comparison to the rise in power purchase costs,
resulting in a negative spread. Also, negative spreads are increasing
over the years. Tariffs increased by 2.3% in comparison to a 3.8%
increase in power purchase cost during FY10 resulting in negative
spread (without subsidy received) increasing by 9% to Rs0.86/kWh.
Poor progress on AT&C loss reduction
Most of the SEB reforms are focussed on reducing AT&C losses. Yet,
overall AT&C losses in FY10 reduced by just 0.59% and continue to
remain high at 27.15%. AT&C losses are particularly high (over 30%)
in the states of Madhya Pradesh, Chattisgarh, Orissa, Uttaranchal,
Uttar Pradesh, Rajasthan and West Bengal.
Subsidy payments from states continue to be inadequate
Despite the Electricity Act requiring states to provide subsidies to their
respective SEBs for meeting the social/political objective of providing
free or subsidised power to the agricultural and below poverty line
residential consumers, SEBs don’t get paid for their subsidy
entitlements. The problem continues to be acute in the large states of
Rajasthan, Andhra Pradesh and Karnataka. Overall in FY10, SEBs
received 56% of their subsidies due vs 54% during FY09.
Cash losses post subsidies increased 17% YoY
Led by above issues, SEBs’ cash losses (post subsidy realised)
increased by 17% to Rs384 bn (US$7.8 bn) during FY10. Cash losses
have been concentrated in a few states such as Rajasthan, Tamilnadu,
Uttar Pradesh, Madhya Pradesh and J&K. However, Maharashtra has
been able to turn into marginal cash profit of Rs1.3 bn in FY10 from a
cash loss of Rs26.8 bn in FY09.
Gearing is now steep at 21x
On one hand, losses and inadequate subsidy payments have resulted
in net worth of SEBs being eroded by 40% in FY10, despite
continuous investments in SEBs’ share capital (Rs159 bn in FY10).
On the other hand, incremental loans of Rs659 bn (up 27% YoY) have
been taken during FY10 to help meet cash needs, resulting in gearing
now at 21x.
Recent tariff hikes are positive but inadequate
Certainly recent tariff hikes taken by various states is a step in the
right direction but we note that the quantum of tariff hikes (4-20%)
taken by ailing states are far inadequate in comparison to the hikes
required (16-106%) in order to eliminate their existing losses (further
hikes would be needed to meet rising power purchase costs). Besides,
SEBs’ creditor cycle has increased by 6% to 84 days in FY10
indicating delayed payments to power generating companies. We thus
continue to remain cautious on the sector pending reforms.
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