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Utilities
India
SEBs: Losses mount as tepid tariff hikes fail to reverse the trend. We probe
reasons for the mounting losses of state utilities, which currently stand at Rs635 bn for
FY2010 on an aggregate basis, although on a subsidy-booked basis the losses are
comparatively modest at Rs295 bn. In an environment of rising costs of supply, the
industry continues to be plagued by insufficient tariff increases and non-receipt of
subsidies. Recent tariff hikes by several states and lower cost of power purchased from
the short-term market could help contain, though not reduce, losses.
Aggregate SEB losses without subsidy jumped 18% yoy in FY2010
As per the report on the financial performance of State Electricity Boards (SEBs) released by the
Power Finance Corporation (PFC), aggregate book losses of all state utilities increased from
Rs537 bn in FY2009 to Rs635 bn in FY2010 (without accounting for subsidies).
However, the losses on a subsidy-booked basis were Rs295 bn and on a subsidy-received basis,
Rs384 bn in FY2010. A bulk of the losses (62%) continue to be contributed by the top-4 lossmaking
states, namely, Rajasthan, Tamil Nadu, Uttar Pradesh and Andhra Pradesh, in that order.
Wheels in motion though plenty of ground remains to be covered
We like the signals set by recent tariff hikes in various states—these could contribute ~Rs160 bn
of incremental revenues in FY2012E.
Softening merchant tariffs from an average Rs5.1/kwh in FY2010 to Rs4.3/kwh in FY2011 could
further help reducing losses by ~Rs37 bn in the FY2011-12E period.
Losses likely to stabilize at Rs800 bn level, further policy push and price hikes necessary
Despite the recent spate of tariff revisions and the reduced cost of short-term power purchased,
an overall increase in power demand and rise in prices of fuel will imply an increase in SEB
losses to Rs800 bn in FY2012E.
We note that further policy initiatives, cost rationalization and tariff revisions are necessary to
bring down the absolute quantum of losses, including reduced cross-subsidization and
improved operating efficiencies.
Per unit revenue gap widens, albeit at a receding rate
The average revenue gap (difference between average cost of supply and average realization)
increased to Rs0.86/kwh (9% yoy), although on a subsidy-booked basis, the revenue gap is a
more manageable Rs0.38/kwh (14% of realizations). However, the top-4 states need tariff
increases of up to 56% on a subsidy-booked basis
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Utilities
India
SEBs: Losses mount as tepid tariff hikes fail to reverse the trend. We probe
reasons for the mounting losses of state utilities, which currently stand at Rs635 bn for
FY2010 on an aggregate basis, although on a subsidy-booked basis the losses are
comparatively modest at Rs295 bn. In an environment of rising costs of supply, the
industry continues to be plagued by insufficient tariff increases and non-receipt of
subsidies. Recent tariff hikes by several states and lower cost of power purchased from
the short-term market could help contain, though not reduce, losses.
Aggregate SEB losses without subsidy jumped 18% yoy in FY2010
As per the report on the financial performance of State Electricity Boards (SEBs) released by the
Power Finance Corporation (PFC), aggregate book losses of all state utilities increased from
Rs537 bn in FY2009 to Rs635 bn in FY2010 (without accounting for subsidies).
However, the losses on a subsidy-booked basis were Rs295 bn and on a subsidy-received basis,
Rs384 bn in FY2010. A bulk of the losses (62%) continue to be contributed by the top-4 lossmaking
states, namely, Rajasthan, Tamil Nadu, Uttar Pradesh and Andhra Pradesh, in that order.
Wheels in motion though plenty of ground remains to be covered
We like the signals set by recent tariff hikes in various states—these could contribute ~Rs160 bn
of incremental revenues in FY2012E.
Softening merchant tariffs from an average Rs5.1/kwh in FY2010 to Rs4.3/kwh in FY2011 could
further help reducing losses by ~Rs37 bn in the FY2011-12E period.
Losses likely to stabilize at Rs800 bn level, further policy push and price hikes necessary
Despite the recent spate of tariff revisions and the reduced cost of short-term power purchased,
an overall increase in power demand and rise in prices of fuel will imply an increase in SEB
losses to Rs800 bn in FY2012E.
We note that further policy initiatives, cost rationalization and tariff revisions are necessary to
bring down the absolute quantum of losses, including reduced cross-subsidization and
improved operating efficiencies.
Per unit revenue gap widens, albeit at a receding rate
The average revenue gap (difference between average cost of supply and average realization)
increased to Rs0.86/kwh (9% yoy), although on a subsidy-booked basis, the revenue gap is a
more manageable Rs0.38/kwh (14% of realizations). However, the top-4 states need tariff
increases of up to 56% on a subsidy-booked basis
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