Slowing capital expenditure likely to trip power companies

Drop on this count by 15% in FY13 for top 25 firms in segment; dip in investor sentiment likely to continue this year

If the recent developments of low power deficit, reduced prices and improved fuel supply have made you think the power sector is headed for a turnaround, think again. The woes of this key infrastructure sector are far from over.

A Business Standard analysis of the investment data for the 25 top listed companies in the segment, sourced from the Capitaline database, reveals capital expenditure dipped 15 per cent to Rs 1,12,687 crore in 2012-13. Further, capex by the private sector, which is expected to infuse more than  half of the total funding in the 12th Plan, dipped 44 per cent to Rs 54,000 crore, Power Minister Jyotiraditya Scindia said.

As power projects follow a three-to-four-year cycle, the declining investment trend points at a major generation and supply crunch by the end of the current Plan, in 2016-17. Experts attribute the worrisome prospects to an all-time low investor sentiment, on the back of uncertainty in fuel supply, regulatory affairs and the policy framework. Coupled with a financially-ill distribution sector.

The Capitaline database, compiled by the Business Standard Research Bureau, calculated capex figures as the difference of the reported (unaudited) figures of Gross Block (worth of assets) and Work in Progress for 2012-13 over the previous year. According to the data, the worst performers included infrastructure major Lanco Infratech, which saw fresh capex dipping 81 per cent to Rs 3,360 crore; Adani Power whose capex tumbled 52 per cent to Rs 6,771 crore; Reliance Power with capex down 42 per cent to Rs 11,284 crore and public sector hydro major NHPC, with a 23 per cent fall in capex to Rs 3,130 crore.

The performance of the companies was also hit by exchange rate fluctuations, high cost of funding and, in some cases, changing global market trends. For the largest private sector power producer, Tata Power Company, fresh investments dipped three per cent to Rs 7,635 crore, as compared to Rs 7,866 crore in the previous year. “Profit after tax (during 2012-13) stood at Rs 1,024 crore, as against Rs 1,169 crore (earlier), mainly due to lower dividend income from coal investments, higher finance charges and higher tax provisioning due to change in depreciation rates,” the company said in its annual report.

Power generator NTPC and transmission giant Powergrid Corp were the only two among the top companies where capex grew in FY13. NTPC has a current installed capacity of 41,000 Mw and wants to add another 14,000 Mw by March 2017. The company has already pulled down its original investment target, of Rs 2 lakh crore, for the current Plan period by around a fourth. Another power sector giant, equipment manufacturer Bharat Heavy Electricals Ltd, is already revising downwards its investment target of Rs 1 lakh crore for the period.

The outlook for the current year, too, does not seem more promising. The government has allowed fuel cost pass-through to set free investments stuck in projects but are consumers willing to pay higher costs? India Ratings, the Fitch Group-owned agency, in its mid-year outlook for 2013, says:  “Increases in gas costs, a depreciating rupee and higher reliance on imported coal could result in higher offtake risk for power plants.” With beneficiaries refusing to buy, companies run the risk of lower operating efficiency, resulting in losses on fuel costs.