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Good things sometimes come with conditions. Center ₹The liquidity backing of Rs 90 billion will ease financial stagnation in energy distribution companies (discoms), helping them to settle outstanding fees.
But the stipulation that central public sector companies offer rebates and waive fixed costs for energy not consumed during the blockade will adversely affect the profits of electricity generators and transmission companies.
Shares of NTPC Ltd and Power Grid Corp. of India Ltd lost 3-4% on Thursday. Even the shares of the companies that will provide liquidity support fell. Power Finance Corp. Ltd (PFC) and REC Ltd fell 1-4%.
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As of March, NTPC has approximately ₹Rs 14 billion of accounts receivable pending from the state electricity boards. Depending on the payment time, the company generally provides 1-2.5% refund to customers.
A 2% refund on outstanding accounts receivable amounts to ₹Rs 280 million, 2% success in NTPC earnings estimates for 2020-21.
But the amount of impact will increase significantly if NTPC has to forgo fixed costs for unused energy during the crash.
After fuel, fixed cost is the next big expense for NTPC. It constitutes finance, depreciation and operating expenses, which amount to 30-40% of the rates. Exemption from this cost can lead to a large cost recovery. “Our next-generation estimates that take a prorated fixed cost over two months and assume 25% lower consumption (in sync with the drop in overall energy demand) indicate a possible impact of around 10% on earnings of fiscal year 21 for both NTPC and Power Grid, “JM Financial Institutional Securities Ltd said in a note.
However, it is still unclear how the government plans to calculate the exemption from fixed charges. Also, unless you explicitly treat this as a one-time exception, development can be an obstacle to utility stocks. After all, these stocks are known for their defensive characteristics and their guaranteed minimum returns on the capital invested by them.
“We believe a sustainable reduction will be avoided if the message comes out loud and clear that it is once,” analysts at Jefferies India Pvt. Ltd. said in a note. Meanwhile, the drop in PFC and REC shares reflects caution. from Investors on their Increasing Exposure to Discomfort.
Credit rating agency Icra warned that telecom losses may increase up to 66% this fiscal year due to falling electricity use by high-rate industrial and commercial consumers, and delays in collection. of cash from other consumer segments.
Additionally, disbursements are tied to discom reforms and reducing financial and operational losses, a time-consuming task. Therefore, while the actual credit burden may not be as large as the cardholder number indicates, increased exposure to nuisance can also increase asset quality risks.
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