Generation falls 17% in Q1; July sees slight recovery
* Power demand remained subdued in June: Power generation fell 11.4%/16.5% yoy to 112.2bn/313.2bn units in June’20/Q1FY21 as demand declined 10.9%/15.5% yoy during the same periods. Generation is expected to fall 5.6% yoy in July’20 as well.
* PLF: In June’20, due to low demand, PLF continued to remain subdued across coal-based plants (down 1,316bps from a year ago to 48.2% vs. 48.3% in May’20 and 41.7% in April’20), nuclear plants (down 711bps to 74.8%) and renewables (down 372bps to 19.7%). However, PLF improved in the gas segment (+416bps to 27.8%) and hydro segment (+787bps to 51.2%) as grid stability needed to be maintained. July’20 PLF is expected to remain subdued in the coal segment amid the change in weather conditions.
* Spot rates and deficits remain suppressed: Both base and peak power deficits remained low at 0.4% and 0.3%, respectively, in June’20. Merchant rates were down 29.2%/25.8% yoy to Rs2.3/kWh in June’20/Q1FY21. Spot rates are likely to revive marginally by 5.4% mom to Rs2.5/kWh in July’20 (-26.8% yoy), primarily due to a slight pick-up in economic activity.
* EAP position: We continue to prefer regulated-return entities such as NTPC, PGCIL, GIPCL and NHPC due to their attractive valuations. Even after the one-time impact of discounts to be provided to discoms, the business model of these entities remains intact as the tariff structure was maintained by the government and the RoE will continue to be determined on the basis of availability.
Our view: The lockdown across the country led to a significant ~15.5% yoy decline in power demand and 16.5% yoy fall in generation in Q1FY21 due to low power offtake from commercial and industrial consumers (C&I) who account for ~45% of the total power demand. The demand, however, is expected to witness a gradual pick-up in the coming months with further relaxation in the lockdown. We expect overall power demand to decline 8.0% in FY21E with the C&I sector expected to witness ~26% decline in offtake due to low utilization levels across industrial plants, malls and commercial offices. Further, the plan to provide Rs900bn concessional loan to state discoms by the PFC/REC under the Atmanirbhar scheme is a welcome move to bring in the much-needed liquidity in the cash-starved sector. However, the disbursement process is taking longer than expected, primarily due to the reluctance of state governments to provide guarantee. This is largely a result of states’ already stressed finances and limited fiscal room to act as guarantors. To date, Rs112.2bn loan has been disbursed to three states: AP (Rs32.9bn), Telangana (Rs54.3bn) and Maharashtra (Rs25.0bn). On the other hand, discoms’ total overdue amount rose 72% yoy and 8% mom to Rs1.14tn as of May’20, while the overall outstanding amount rose to Rs1.27tn (close to its all-time high of Rs1.35tn seen in Nov’15 – pre-UDAY level). We continue to prefer regulated entities such as NTPC, NHPC, GIPCL and PGCIL due to their attractive valuations. Even after the one-time impact of discounts to be provided to discoms, the business model of these entities remains intact as the tariff structure was maintained by the government and the RoE will continue to be determined on the basis of availability
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