India Ratings and Research has published a ready reckoner on the financial health of 19 distribution utilities (discoms), which highlights their leverage, profitability, operational efficiency and working capital position.
Health of companies operating in the power sector depends on the health of discoms directly or indirectly. Counterparty risk for generation companies is generally considered to be a weaker link in any energy project analysis, especially in India. A deep and efficient infrastructure bond market requires a predictable and stable counterparty behaviour when it comes to honouring contractual arrangements. Therefore, the ability to analyse the predictability and timeliness of revenue forms the pivot of a project finance transaction, especially renewable energy projects that have few other externalities. Also, given the investment interest from governments, financial investors, funds, multilaterals and other development agencies tending to substitute fossil fuels with renewable energy, the analysis of counterparties (viz discoms) is gaining traction and international attention.
Given likely strong renewable capacity additions, it is crucial to analyse the financial health and behaviour of the discoms. That being stated, the data on discoms are scattered across various places, leading to a dire need to bring the data together and represent the same for making analytical interpretation. This report is an attempt by Ind-Ra to present some vital statistics of the discoms in an easily understandable infographics form.
The multitude of activities in the power sector including Ujwal Discom Yojana, auctions for buying renewable power by state and central agencies, efforts to negotiate or change tariff, and resolution process for stressed thermal assets creates a sense of urgency in understanding and analysing the financial and operational performance of discoms.
The agency trusts this report would act as a ready reckoner and would enable the stakeholders to take an informed decision. The agency has used colour codes and graphical representation to highlight the strongest and the weakest performance parameters for quick interpretation.
Among the 19 discoms analysed, seven exhibited negative EBITDA in FY17 and 10 had payable days above 150. Discoms of Gujarat are consistently performing well. Few discoms, namely, Eastern Power Distribution Company of Andhra Pradesh Limited, Jharkhand Bijli Vitran Nigam Limited, Bengaluru Electricity Supply Company Limited, Hubli Electricity Supply Company Limited, Telangana State Northern Power Distribution Company Limited and Telangana State Southern Power Distribution Company Limited showed deterioration in major parameters from FY16 to FY17.
This report has sourced data from annual reports of discoms, tariff orders from state electricity regulatory commissions, tariff filings with state electricity regulatory commission and Power Finance Corporation’s report on power sector utilities. Based on best available data sources, the agency has released the report.
Additional information is available at www.indiaratings.co.in.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.