Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NBFCs
India
SEBs: 2010 financials - trends encouraging though losses increase. State Electricity
Boards (SEB) reported a moderate (17% yoy) increase in losses during 2010. The
increase is losses is worrying, but we also see several positive trends from a lender’s
perspective – (1) losses are driven by few states, (2) deficit is much lower if Government
subsidy were fully realized, (3) AT&C losses are declining in several states, (4) SEBs have
periodically infused capital and (5) interest expenses have low share in overall expenses.
Lower merchant tariffs and recent tariff hikes for consumers will likely cushion the rise
in fuel prices and improve FY2012E financials. Retain BUY on PFC and REC.
SEB losses increase in 2010, albeit moderately
SEB losses (on subsidy realized basis) increased by 17% yoy in 2010 to Rs444 bn (on the back of
146% rise in losses in 2009). The increase is losses is a concern, however, the quantum of increase
appears moderate despite partially reflecting the fuel price rise.
Coal prices have increased by 10% since October 2009. The financials of 2010 partially reflect the
rise in fuel prices. In this backdrop, the financials of FY2011 will be stressed; however, a decline in
merchant tariffs in 2HFY11 will likely ease the stress on balance sheet. The rise in power tariffs in
12 states in the past six months by 5-25% is also positive development.
Top five states drive most losses
SEB losses (before subsidies) increased by 20% yoy to Rs635 bn in 2010. The aggregate book
losses were lower at Rs295 bn (up 19% yoy) after factoring the subsidies accrued from State
Government. However, if we factor the subsidies released (and not accrued) the losses increase to
Rs444 bn.
Top five states contributed to about 71% of the losses (before subsidies). The top five states are
Rajasthan (20% of total losses), Tamil Nadu (18% of total losses), Uttar Pradesh (15%), Andhra
Pradesh (10%) and Madhya Pradesh (8%). On average, during 2010, State Government subsidies
have been about 25% of the losses before subsidy (about 30-33% post subsidy). In case of the
aforesaid five states, the contribution is lower at 7-20%.
The recent tariff hike in Rajasthan, Andhra Pradesh and Madhya Pradesh is comforting trend. We
believe that Tamil Nadu proposes to raise tariffs by December 2011. PFC has 39% exposure to
these five states (as on December 2011) as compared to 46% for REC (as of March 2011).
Deficit manageable if fuel price rise is under control
During 2010, the deficit in per unit (kwh) was Rs0.86. After factoring all the subsidies booked, the
loss reduces to Rs0.38 per unit i.e. about 11% of revenue per unit (Rs3.3). However, the
proportion of subsidies released to subsidy booked declined to about 55% in 2009 and 2010 as
compared to 94% in 2007 and 85% in 2008. Thus, the situation seems manageable if fuel prices
rise is moderated and State Governments provide the entire subsidy.
Fuel prices account for about 75% of the total expenses and thus fuel price movements have high
sensitivity to SEB earnings. Interest expenses were only 6-7% of the overall expenses between
2008 and 2010. Thus, a restructuring of bank loans may not significantly improve the cash flows
of SEBs even as the share of banking sector loans has increased to 55% of total borrowings in
2010 from 46% in 2008.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NBFCs
India
SEBs: 2010 financials - trends encouraging though losses increase. State Electricity
Boards (SEB) reported a moderate (17% yoy) increase in losses during 2010. The
increase is losses is worrying, but we also see several positive trends from a lender’s
perspective – (1) losses are driven by few states, (2) deficit is much lower if Government
subsidy were fully realized, (3) AT&C losses are declining in several states, (4) SEBs have
periodically infused capital and (5) interest expenses have low share in overall expenses.
Lower merchant tariffs and recent tariff hikes for consumers will likely cushion the rise
in fuel prices and improve FY2012E financials. Retain BUY on PFC and REC.
SEB losses increase in 2010, albeit moderately
SEB losses (on subsidy realized basis) increased by 17% yoy in 2010 to Rs444 bn (on the back of
146% rise in losses in 2009). The increase is losses is a concern, however, the quantum of increase
appears moderate despite partially reflecting the fuel price rise.
Coal prices have increased by 10% since October 2009. The financials of 2010 partially reflect the
rise in fuel prices. In this backdrop, the financials of FY2011 will be stressed; however, a decline in
merchant tariffs in 2HFY11 will likely ease the stress on balance sheet. The rise in power tariffs in
12 states in the past six months by 5-25% is also positive development.
Top five states drive most losses
SEB losses (before subsidies) increased by 20% yoy to Rs635 bn in 2010. The aggregate book
losses were lower at Rs295 bn (up 19% yoy) after factoring the subsidies accrued from State
Government. However, if we factor the subsidies released (and not accrued) the losses increase to
Rs444 bn.
Top five states contributed to about 71% of the losses (before subsidies). The top five states are
Rajasthan (20% of total losses), Tamil Nadu (18% of total losses), Uttar Pradesh (15%), Andhra
Pradesh (10%) and Madhya Pradesh (8%). On average, during 2010, State Government subsidies
have been about 25% of the losses before subsidy (about 30-33% post subsidy). In case of the
aforesaid five states, the contribution is lower at 7-20%.
The recent tariff hike in Rajasthan, Andhra Pradesh and Madhya Pradesh is comforting trend. We
believe that Tamil Nadu proposes to raise tariffs by December 2011. PFC has 39% exposure to
these five states (as on December 2011) as compared to 46% for REC (as of March 2011).
Deficit manageable if fuel price rise is under control
During 2010, the deficit in per unit (kwh) was Rs0.86. After factoring all the subsidies booked, the
loss reduces to Rs0.38 per unit i.e. about 11% of revenue per unit (Rs3.3). However, the
proportion of subsidies released to subsidy booked declined to about 55% in 2009 and 2010 as
compared to 94% in 2007 and 85% in 2008. Thus, the situation seems manageable if fuel prices
rise is moderated and State Governments provide the entire subsidy.
Fuel prices account for about 75% of the total expenses and thus fuel price movements have high
sensitivity to SEB earnings. Interest expenses were only 6-7% of the overall expenses between
2008 and 2010. Thus, a restructuring of bank loans may not significantly improve the cash flows
of SEBs even as the share of banking sector loans has increased to 55% of total borrowings in
2010 from 46% in 2008.
No comments:
Post a Comment