Sector Update |17 October 2019
Utilities
The Prevailing ‘Discom’fort
The dire health of DISCOMs is a
Rajasthan DISCOMs: Government subsidy crucial
bottleneck for sustainability of the
Electricity Generation sector in
Rajasthan accounts for ~6% of the country’s electricity demand (fifth largest). The
India. UDAY played an important
state is also home to an estimated 6.5m agricultural households (fourth largest),
role in addressing the then balance
implying large exposure to this highly subsidized consumer category. In this report, we
sheet issues of DISCOMs, but we
have consolidated and analyzed the financials of all three DISCOMs in Rajasthan
believe, more radical measures are
(AVVNL, JVVNL and JdVVNL).
needed to address their
~40% of the DISCOM’s power is sold to agricultural consumers. Thus, dependence on
operational issues.
government subsidy is huge and represents ~21% of the DISCOM’s total revenues.
Our
‘The Prevailing ‘Discom’fort
report takes a look at the financial
performance of DISCOMs (based on
their tariff filings or audited
financials, as available) in an
attempt to gauge the situation at
hand.
At an EBITDA level, losses have reduced ~30% from FY15 levels to INR74b in FY19 led
by sharp tariff hikes for its industrial and domestic customers. This, though, could
impact the offtake ability of such segments. Further, Rajasthan’s DISCOMS have
proposed 11.8% tariff hike (across categories) for FY20. AT&C loss, while~625bp lower
over FY15-19, remains high at ~25%.
After cash loss of INR112b in FY16, DISCOM’s losses reduced to INR2b in FY17 and
turned cash positive in FY18-19 led by UDAY grant of INR90b in FY17 and INR120b
each in FY18 and FY19. Not accounting for any such grants, we expect cash losses for
these DISCOMs in FY20, despite building in tariff hikes.
Tariff hikes aid growth:
Rajasthan is a case study for high cross subsidization with
Industrial tariffs rising from ~INR5.8/kWh in FY15 to ~INR8.0/kWh in FY19; domestic
tariffs have increased from ~INR3.9/kWh in FY15 to ~INR5.1 in FY19. Agricultural
tariffs, on the other hand, have increased from ~INR1.2/kWh in FY15 to just
~INR1.8/kWh in FY19. Such a large increase in industrial/domestic tariffs could
impact the offtake ability of such segments. Furthermore, Rajasthan’s DISCOMS
have proposed 11.8% tariff hike (across categories) for FY20. As far as volumes are
concerned, Industrial volumes have risen at ~8% CAGR over FY15-19, whereas
Domestic volumes and Agricultural volumes have increased at 4.1% and 5.4% CAGR,
respectively, over the same period.
Power purchase cost under control:
Power procurement costs, which constitutes
~85% of total expenses, has increased by INR0.49/kWh over FY15-19 (to
INR4.53/kWh) while the average revenue realization has increased by INR1.42/kWh
over FY15-19. This has improved the operational performance of DISCOMs.
AT&C losses reduce, but higher than all-India level:
After UDAY, AT&C losses have
reduced drastically from 31.2% in FY15 to 24.9% in FY19. Though the reduction is
significant, the AT&C losses are high compared to all-India level (~18%) and UDAY’s
target of 15%. Based on the tariff filings, AT&C losses are expected to reduce to
~21% in FY20, but we believe this looks difficult to achieve.
Heavily dependent on government subsidy:
Total tariff subsidy represents
estimated ~21% of total FY19 revenues (Note:
For AVVNL, subsidy received numbers
for FY19 are not available and are assumed at FY18 level).
As highlighted earlier, the
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
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