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Power Sector Q2 Preview: Demand spike to better PLF, boost generation, profitability

For the quarter, growth in hydropower generation stood at 14 percent while that in thermal and renewable energy stood at 2.5 percent and 8.5 percent, respectively, on an annualised basis.

October 14, 2022 / 03:22 PM IST
 
 
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Power sector companies are likely to report strong numbers for the quarter ended September 2022 on the back of a 5 percent –on-year (YoY) growth in demand. The daily peak demand during the quarter was also higher by 4 percent on year.

India’s power consumption grew by 13.3 percent on an annualised basis to 127.4 billion units (BU) in September 2022 and 11.65 percent during the first six months of this financial year.

Electricity generation was higher for both the public sector and private players while distribution companies reported sales that were substantially higher, which should show up in higher revenues.

Experts believe that demand for as well as consumption of electricity will increase further due to the festival season and improvement in economic activity with the ministry of power expecting peak demand to touch 215 GW (gigawatts).

Generation

July and August saw low generation growth due to heavy rains but September saw about 11 percent generation growth over the previous year, with hydropower generation going up by 24 percent and thermal 9 percent.

For the quarter, growth in hydropower generation stood at 14 percent, with thermal and renewable energy posting a growth in generation of 2.5 percent and 8.5 percent, respectively, on a YoY basis.

Fuel for generation

According to a report from Emkay Research, coal production reported a YoY growth of 11 percent for the quarter and an on-year growth of 20 percent for the first six months of the current fiscal. Coal dispatches were up 5 percent YoY for the quarter and up 8 percent for H1FY23.

“As of end-September (i.e. till 29 Sep), coal inventory at domestic coal-based plants stood at 24MT, which is up 2.4x since clocking 10MT in Sep-21, when a sudden spike in generation pushed up coal demand,” said the report from Emkay Research.

International coal prices remained at elevated levels in Q2FY23 and given the various events and situations surrounding Europe and gas prices, analysts at ICICI Securities expect prices to remain high in FY23. Australian and South African thermal coal prices were more than $ 300 per tonne for the whole quarter while Indonesian coal prices moderated slightly to $170 per tonne.

However, JKM (Japan Korea Marker) LNG (liquefied natural gas) prices again increased towards the end of September to more than $50 per MMBtu (metric million British thermal units).

The higher prices of coal and gas will likely impact the profitability of Indian power companies on a sequential basis.

Performance of the main players

NTPC – It is likely to see a generation growth of 8-9 percent on-year, along with realisation growth of 12 percent.

“During Q2FY23, generation for NTPC (standalone) grew by ~9 percent YoY, which is far better than the total Indian thermal generation growth of 2.5 percent YoY,” said analysts at Emkay Research. Generation from NTPC’s key subsidiaries/joint ventures grew by 34 percent YoY on the back of higher capacity and improved plant load factor (PLF).

However, experts expect input cost growth is likely to remain ahead of realisation, which will lead to about 8 percent YoY growth in profit after tax (PAT) growth for NTPC.

Power Grid - The company has plans to foray into the smart metering infra business, where it will invest in smart meter asset development business as floated by the respective state utilities. Power Grid aspires to be present across the value chain, wherein it will set up the required infrastructure and manage operations and maintenance business as well.

“Power Grid is expected to grab a significant portion of the tariff-based competitive bidding (TBCB) opportunity of ~Rs 30,000 core over the next six months,” said a report from ICICI Securities. The brokerage expects the company’s Q2FY23 consolidated recurring PAT to increase 10.1 percent YoY on the back of Rs 11,000 crore trailing 12 months asset capitalisation.

Tata Power - Prices of imported coal are up over 7 percent quarter-on-quarter and +128 percent annually, leading to improved coal profitability from the company’s Indonesian mines.

Analysts at Kotak Institutional Equities expect higher imported coal prices to lead to improved profitability while performance in the generation segment is likely to remain on the regular course with losses likely to come down in Mundra.

According to a report from ICICI Securities, the company’s renewables and distribution business makes it the best private player in the sector and expects the company’s adjusted PAT to increase 67 percent YoY to Rs 680 crore for the quarter.

Coal India - Coal India will continue to benefit from higher volumes due to import substitution as well as higher prices for e-auction sales.

Analysts at ICICI Securities estimate Coal India’s Q2FY23 PAT to grow 102 percent YoY to Rs 5,900 crore mainly due to a 4.7 percent YoY growth in offtake to 154 million tonnes and 16.7 percent YoY increase in average realisation to Rs 1,689 per tonne.

Among other players, owing to seasonality, the hydro plants of JSW Energy and NHPC are likely to report strong PLFs basis which the PAT for JSW is likely to increase by 25 percent on year and NHPC is likely to see a moderate growth of 3 percent.

Disclaimer: The views and investment tips of investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 

Gaurav Sharma

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