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Demand remains firm

Funds from the liquidity package keeping a check on receivables

* An increase in COVID-19 cases has led to the announcement of stricter restrictions and curfews in various Indian states. The same has led to uncertainties over growth in India’s Power demand.

* While the full implications on demand is yet to have panned out, the underlying data for Power demand has so far not showed any signs of waning. It continues to trend a healthy 40%/9% v/s Apr’20/Apr’19 levels.

* Funds from the REC-PFC led Atmanirbhar scheme has picked up pace, and along with the improved Power demand, has aided the receivables situation of generators.

We provide updates on these aspects below:

Demand continues to remain firm

* Over the past six months, India’s Power demand had witnessed continued recovery (2HFY21: +8% YoY), leading to a drop of just 0.7% YoY in FY21. With states announcing stricter restrictions and curfews, amid the rise in COVID-19 cases, there are uncertainties over demand.

* The underlying data on Power demand has so far not showed any signs of weakening. For Apr’21, India’s Power demand is trending up 42% YoY and 9% v/s Apr’19 levels. Over the past one week as well, despite restrictions/curfews across states, demand has held firm. In particular, Power demand for states such as Gujarat and Maharashtra, which are key industrial regions, are up 48% and 36% YoY, respectively.

Money from the PFC-REC liquidity package coming through

* Power generators have been struggling with mounting receivables from DISCOMs. However, this too has remained under check in the previous few months, given: a) the rise in Power demand, and b) disbursal of money through the PFC-REC liquidity package.

* Media articles (link ) have indicated an INR150b (~15% of total overdue) decline in DISCOM overdue in Mar’21. While we await official data, this largely seems to be on the back of increased money from the PFC-REC scheme. Total disbursals under the scheme now stand ~INR760b. A total of INR1.36t has been sanctioned under this scheme. Disbursal of the remaining amount would be a key positive.

IEX’s volumes on a strong footing

* Volume momentum on IEX remains strong in Apr’21, led by robust purchases from the southern region (such as Andhra Pradesh and Telangana) and Gujarat. RTM continues to perform well, with volumes crossing 1.1BU in Apr’21. At an aggregate level, Electricity volumes on IEX are up 98% YoY in Apr’21 MTD (22 days).

* With the uptick in Power demand, prices have also started to inch up. This could potentially dent some of the price arbitrage opportunities on Power exchanges. GUVNL, one of the largest buyers on IEX, has recently floated a tender (link) to purchase 1,000MW of Power on a medium-term contract, thereby indicating its inclination to tie up Power given the surge in demand along with the potential lack of Power supply from Essar (link).

Receivables to be keenly watched; regulated players well insulated

* The impact on Power demand may have not set in yet, as stricter restrictions may get imposed along with a subsequent cut back in industrial activity. This in turn could lead to an impact on DISCOM revenues and further stretch payments to generators.

* We continue to keep a keen eye on the same. However, the underlying data for demand so far remains firm. Regulated players such as NTPC are well-insulated to external demand conditions, along with compensation for stretched receivables in the form of a late payment surcharge. Risk of a sharp ballooning of its receivables would be a cause for concern and remains keenly watched. In this context, money flowing through from the PFC-REC led scheme is a positive and further liquidity could aid in some normalization of receivables. Stocks such as NTPC, JSW Energy, and COAL could be key beneficiaries of this normalization.

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