Delay in tariff increase, higher coal prices keep CESC muted in Q1

Delay in regulatory approvals to hike tariff and predominant higher coal prices in the spot auctions hurt CESC’s income as well as its profitability which remained muted in the first quarter (Q1) of the current fiscal year.

Against the income of Rs. 21.64 billion during the Q1 period of the last fiscal year, the company’s net revenue remained flat at Rs. 21.59 billion while net profit increased marginally by 2.25 per cent at Rs. 1.82 billion. In the similar period of the 2017-18 fiscal year, the net profit stood at Rs. 1.78 billion.

According to Rupesh Sankhe, senior research analyst with Reliance Securities, the power company had resorted to purchase electricity from its own subsidiaries in Haldia and Chandrapur units which were impacted by higher coal prices.

He estimates that power generation in Haldia is up by 7.8 per cent to 1110 million units (mu) while generation in Chandrapur was up by 48 per cent at 967 mu. However, CESC’s standalone generation declined by 1.5 per cent.

On account of lower own generation, its cost of electricity purchase increased 7.72 per cent to touch Rs. 8.37 billion.

Market analysts had predicted a muted quarter for this company and the results have been in line with their projections.

On back of improved global coal prices and shortage of domestically available coal, prices for the power sector in the spot auctions fared well for Coal India as prices soared above Rs. 2000 a tonne, increasing by an estimated 40 per cent on the notified price. In turn, it pulled up procurement costs for power generators substantially.

Nevertheless, Sankhe said that merchant power rates, which account for 10 per cent of CESC’s total electricity supply, would  have benefited this company.

“There was an overall improvement in market merchant rate which had gone up to Rs. 4.1 a unit, increasing by 51 per cent year-on-year”, Sankhe added. 

An analyst with Motilal Oswal opined that improvement in revenue is expected in the coming quarters as regulatory approvals have already come in.

Sources said that regulatory authorities, earlier this month, have allowed a 8.15 per cent increase in tariff against CESC’s demand of a 14.91 per cent increase.