Lower power demand during lockdown to increase DISCOM dues: Kotak

While most utilities under coverage operate under the cost-plus tariff mechanism (not volume-linked), we will likely continue to see a receivables build -up and lower cash generation, the brokerage said in its latest report on el ectric utilities.

Weakness in demand will impact merchant/un-contracted capacities of players such as JSW Energy and CESC among our coverage universe, it added.

The brokerage has studied different scenarios of the impact of lockdown on p ower demand and consumption. A 20 per cent drop in power consumption is like ly to lead to an increase in fixed cost per unit by 25 per cent to Rs 6.35/kw h (based on FY2017 data), raising the under-recovery to Rs 1.5/kwh (from Rs 0.24/kwh in FY2019) and monthly losses to over Rs 10,000 crore from Rs 23,000 c rore in FY2019).

A weak economic environment in 9MFY20 reflected in poor demand for powera "40 per cent of demand for power is with industrial users, leading to risi ng overdue which increased to Rs 86,600 crore in January 2020 from Rs 41,900 crore a year ago on the back of 1.6 per cent year to date (YTD) growth in power  demand, Kotak said in its report.

Indian distribution utilities have consumption-leaning revenue model, wherein payment for power is largely dependent on actual consumption (with a low c apacity charge). On the other hand, cost for distribution, transmission and g eneration capacities is largely fixed (76%), leading to a sharp deterioratio n in financials for distribution utilities in times of a weak economic envir onment.

"We note that while most companies under our coverage universe opera te under the cost-plus business model that has low implications from actual v olumes consumed, still they will stand to reel under cash-flow mismatches wi th larger quantum of unpaid bills," the report said.

Companies with un-contracted capacities, such as JSW Energy (Vijaynagar, 860  MW), CESC (Chandrapur, 600 MW) and JSPL (Tamnar, 1,000 MW), would be more vulnerable owing to their dependence on short-term markets, which will likely  see lower volumes as well as drop in realizations.

But, Power Grid and NHPC have no impact on earnings on account of the Covid- 19 situation; if at all they may see higher surcharge income accounted due t o delay in payments by SEBs. NTPC will also have a minimal impact on account  of lower generation, as PLF-based incentives accounted for barely 2% of PAT  in FY2019.