B anking on policy action in the sector
We met with various Indian power sector participants last week
We met with several power sector participants over the past week (14 September in
Mumbai, 15 Sep in Lucknow and 16 Sep in Delhi). We met officials at power
distribution companies, State Electricity Boards (SEBs), the regulator (Central
Electricity Regulatory Commission or CERC), the Planning Commission,
independent consultants in the sector, and power generation companies.
We wanted an update on the tariff hikes, SEB losses and coal supply
The key objective behind these meetings was to get the most up-to-date sector
views of industry participants. We wanted to understand the impact of the recent
tariff hikes across states and its implications for the financial health of the SEBs.
We also wanted to understand the outlook on coal availability for the power
generation sector.
Policy action from central government likely; states to raise tariffs
Our findings are: 1) the central government would focus on reducing SEB losses
and improving domestic coal availability; 2) states would continue to raise tariffs
and would rationalise electricity tariffs so that cost of supply and revenue are better
aligned; and 3) the power sector would continue to grow at a minimum of 5-6%
p.a.
UBS view and action: Power Grid and Lanco are our top picks
We think there are attractive buying opportunities in the sector. We like companies
with low risk (Power Grid and NTPC) or those with compelling valuations (Lanco
and Reliance Infrastructure). We also have Buy ratings on NTPC, Tata Power, and
Reliance Infra. We recently upgraded Reliance Power from a Sell to Buy rating.
We met with various Indian power sector participants last week
We met with several power sector participants over the past week (14 September in
Mumbai, 15 Sep in Lucknow and 16 Sep in Delhi). We met officials at power
distribution companies, State Electricity Boards (SEBs), the regulator (Central
Electricity Regulatory Commission or CERC), the Planning Commission,
independent consultants in the sector, and power generation companies.
We wanted an update on the tariff hikes, SEB losses and coal supply
The key objective behind these meetings was to get the most up-to-date sector
views of industry participants. We wanted to understand the impact of the recent
tariff hikes across states and its implications for the financial health of the SEBs.
We also wanted to understand the outlook on coal availability for the power
generation sector.
Policy action from central government likely; states to raise tariffs
Our findings are: 1) the central government would focus on reducing SEB losses
and improving domestic coal availability; 2) states would continue to raise tariffs
and would rationalise electricity tariffs so that cost of supply and revenue are better
aligned; and 3) the power sector would continue to grow at a minimum of 5-6%
p.a.
UBS view and action: Power Grid and Lanco are our top picks
We think there are attractive buying opportunities in the sector. We like companies
with low risk (Power Grid and NTPC) or those with compelling valuations (Lanco
and Reliance Infrastructure). We also have Buy ratings on NTPC, Tata Power, and
Reliance Infra. We recently upgraded Reliance Power from a Sell to Buy rating.
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