SECTOR UPDATE

19 DEC 2016

Power
KEC International
CMP (as on 16 Dec 2016)

138

Rating

BUY

Target Price

175

Upside

27.1%

Kalpataru Power
CMP (as on 16 Dec 2016)

236

Rating

BUY

Target Price

363

Upside

53.8%

Techno Electric
CMP (as on 16 Dec 2016)

299

Rating

BUY

Target Price

371

Upside

24.2%

Crompton Greaves
CMP (as on 16 Dec 2016)
Rating
Target Price
Upside
Pawan Parakh
pawan.parakh@hdfcsec.com
+91-22-6171-7314
Ashutosh Mehta
ashutosh.mehta@hdfcsec.com
+91-22-3078-8241

59
NEU
80
34.8%

UDAY: Light at the end of a long tunnel

A year after launch, the Power Ministrys UDAY
scheme has covered 17 states, representing ~68%
of Indias cumulative Discom debt and ~70% of
Indias power consumption footprint. We analysed
the 17 MoUs to understand whether Discoms plans
to turn profitable by FY20E are feasible.
First, UDAY is not a one-size-fits-all plan. The
differences across states are mostly around debt
transfers, tariff increases and targeted reductions in
AT&C losses. While interest cost reduction and
tariff increases look feasible, the targeted reduction
in AT&C losses seem ambitious.
Second, even as power demand remains sluggish
(3.2% growth Ytd Nov-16), UDAY has made decent
progress: (1) Bonds issuances have hit Rs 1.83tn+,
(2) 95% feeder metering is done for UDAY states
and (3) Tariff revision orders have been issued for
16 of 17 UDAY states. The positive impact of these
measures should be visible from FY18 onwards.
Ergo, most Discom finances should substantially
improve (even if they lag UDAY targets).
This augurs well for T&D companies we cover viz.
KEC (BUY, TP Rs 175/sh, 27.1% upside), Kalpataru
(BUY, TP Rs 363/sh, 53.8% upside), Techno Electric
(BUY, TP Rs 371/sh, 24.2% upside) and Crompton
Greaves (BUY, TP Rs 80/sh, 34.8% upside). We
remain positive on all these stocks, as improving

Discom finances and operations will accelerate

tender flow.

Key highlights

There are some exceptions to the standard UDAY

norm of transferring 75% of total Discom debt to
states over two years. A few Discoms (notably,
Maharashtra & MP) are transferring only a part of the
Discom debt and that, too, over an extended period
of 5 years. Of the Rs 4.03tn Discom debt, UDAY bonds
have been issued to the tune of Rs 1.83tn. This
should lead to substantial interest cost savings for
Discoms.
We believe that the average tariff hike is likely to be
~4.6% p.a over the FY16-20E period (considering
historical track record). Importantly 16 out 17 UDAY
states have already filed tariff petitions for FY17E.

AT&C losses will be the crucial monitorable for

UDAYs success. While aggregate AT&C loss is

expected to reduce from 22% to 15% over FY16-20,

the targets for some states (notably Rajasthan,
Jharkhand, Bihar, J&K, UP & MP amongst others) are
too steep (more than 2.5% reduction p.a).

Regular review and accountability is also one of the

key highlights of UDAY (unlike earlier schemes).
Hence we expect to see considerable improvement in
Discom finances going ahead (even if some of them
miss the ambitious targets set under UDAY MoUs).

This will substantially improve order flow

visibility for T&D and equipment companies in

our coverage.

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>

POWER : SECTOR UPDATE

17 states subscribed to UDAY and more to come

Currently with 17 states under
UDAY, ~68.3% of Discom debt
as on Mar-15 is covered under
the scheme

UDAY focuses more on

improving operational
efficiencies rather than merely
increasing tariffs

Government of India announced the UDAY scheme in

Nov-15 with an aim to turnaround the finances of
state discoms. Unlike earlier restructuring packages,
UDAY focused more on improving the operational
efficiencies than merely increasing tariffs. After one
year of the launch, 17 states have signed MoUs to
join the UDAY program.

These seventeen states constitute ~70% of the

cumulative power demand of India and ~68% of the
cumulative Discom debt as on Mar-15. UDAY, so far,
has got sizeable coverage with only Tamil Nadu and
West Bengal, being other large states not signed to it.
However several media reports suggest that Tamil
Nadu will soon subscribe to UDAY as well.
Source: MoP

Pie Chart On UDAY Coverage

Debt of states covered under UDAY (FY15 - Rs 2.8tn)
Debt of states yet to be covered under UDAY (FY15 - Rs 1.3tn)

While the impact of UDAY is

not visible now (in terms of
power demand), we expect
the same to change going
ahead as Discoms benefit from
lower interest costs

India Map On UDAY Coverage

31.7%

Limited impact for now; but should be felt in FY18E

Despite several states joining the UDAY program, the

power demand continues to be weak across the
country. Pan-India growth in power demand stands
low at 3.2% until YTD Nov-16 (vs. 6.7/ 4.2% for
FY15/16 respectively).

Weak power demand is a confluence of several

factors like weak industrial demand and poor Discom
health (restricting working capital funding by banks).
However it is important to note that states have
already issued UDAY bonds to the tune of Rs 1.83tn
till date (including bonds issued to clear outstanding
dues of CPSUs), which is substantial, considering ~Rs
4.3tn of Discom debt. The same would certainly help
in easing Discom finances for FY18E.

Substantial progress has already been made on

feeder metering (Chart below) and going ahead the

68.3%

Source: MoP, HDFC Sec Inst Research

Page | 2

POWER : SECTOR UPDATE

A confluence of the above factors should lead to

improvement in demand and help Discoms
substantially reduce their losses (if not a complete
turnaround), in our view.

Substantial Amount Of UDAY Bonds Already Issued

Particulars
Rs bn
Cumulative Discom debt
4,300
Cumulative Discom debt of UDAY States
2,804
Transferable debt under UDAY
1,863
UDAY bonds issued till date*
1,830
* Note: Also includes UDAY bonds issued by several states
(viz. J&K - Rs 35.4bn & Jharkhand - Rs 61.4bn and others)
to clear outstanding dues of CPSUs

India Power demand growth

10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

Source : MoP, HDFC sec Inst Research

FY12

FY13

FY14

FY15

FY16

Ytd
Nov16

Source : CEA, HDFC sec Inst Research

Feeder Metering Substantial Achievement

Metering Yet To Improve

Achievement so far (%)

Achievement so far (%)

100%

100%

96%

80%

80%
65%

60%

60%

52%

43%

20%

20%

2%

0%

Smart Metering
200 to 500 kWH

40%

Smart Metering
above 500 kWH

40%

Source : MoP, HDFC sec Inst Research

Feeder
Segregation

0%

DT Metering
(Rural)

0%

DT Metering
(Urban)

100%

Feeder
Metering
(Rural)

Power demand improvement

and lower interest costs
should enable Discoms to
reduce their losses

India Power Demand Falls To 3.2% (Ytd Nov-16)

Feeder
Metering
(Urban)

Bonds to the tune of Rs 1.83tn

have already been issued by
UDAY states. The same should
substantially aid in reducing
losses in FY17/18E

government is committed on installing smart meters

as well, which would also help in reducing AT&C
losses. Additionally continued government thrust on
rural electrification (24x7 - Power for all) should also
help in driving power demand over next 1-2 years.

Source : MoP, HDFC sec Inst Research

Page | 3

POWER : SECTOR UPDATE

UDAY : not a one-size-fits-all approach

The key highlights of the UDAY scheme include (1)
debt transfer from Discom to states (2) reduction in
AT&C losses and (c) improvement in operational
efficiencies (billing & collection efficiency, timely
preparation of accounts and filing of returns). Within
these key parameters we note that MoU targets
significantly differ amongst various states.

Our analysis of all the 17 MoUs suggests that not all

states would transfer their debts to the state
government. In fact some of the Discoms transfer
only a small portion of total debt (not 75% of total
debt) to the states. Our interaction with some of the
states suggests that these deliberations were driven
more by political compulsions than economics
pertaining to state fiscal deficit targets.

We understand that the other large states (viz. Tamil

Nadu and West Bengal) have requested for certain
modifications post which they would also join the
scheme. Meanwhile the government has also
extended the deadline to join the UDAY scheme to
Mar-17.

On similar lines there exist wide differences between

states, in their targets for AT&C loss reduction, tariff
increases and improvement in other operational
efficiencies. As can be seen in the chart below, the
average tariff hike across states ranges from 0 to
14%.

While a substantial part of tariff hikes would be

dependent on the need of the particular Discom,
targets for a few states are significantly higher than
their historical track record.

Statewise Average Tariff Increase

Average Tariff Increase (FY16-FY20)

Uttarakhand

Rajasthan
Ajmer
Rajasthan
Jaipur
Rajasthan
Jodhpur
Uttar
Pradesh

Punjab

Puducherry

Manipur

Maharashtra

Madhya
Pradesh

Karnataka

Jharkhand

J&K

Haryana *

Gujarat

Goa

Chattisgarh

Bihar South

16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

Bihar North

We understand that the other

large states (viz. Tamil Nadu
and West Bengal) have
requested for certain
modifications post which they
would also join the scheme.

Andhra
Pradesh

MoU targets under UDAY vary

amongst different states. The
guidelines are tailored to suit
the needs of various states.

*As per regulatory orders from time to time

Source: Various MoUs, HDFC Sec Inst Research

Page | 4

POWER : SECTOR UPDATE

Discom debt of states like

Gujarat, J&K and Karnataka
will not be taken over by state
government

Discom debt juggernaut and the way forward

Maharashtra and MP Discom

debt to be taken over by state
over 5 year period

Cumulative Discom debt increased by ~34% from Rs

3.04tn to Rs 4.07tn over the FY13-15 period. The
cumulative debt of the UDAY states stand at ~Rs
2.8tn, thereby covering a substantial portion (~68.3%)
of the total Discom debt
While the UDAY scheme proposed for 75% of the
total debt to be transferred over a 2 year period,
there exist several anomalies to the same. We note
that (a) several states like Gujarat, J&K and
Karnataka amongst others (cumulative debt of Rs
13.6bn) would not transfer any debt to the state
government. (b) Maharashtra would transfer only

29.9% of the total debt (essential 75% of short and

medium term debt) that too over a 5 year period.
Similarly Madhya Pradesh also plans to transfer the
debt over a 5 year period.

Our interaction with some of the states suggests that

political compulsions coupled with likely increase in
state fiscal deficit (post Mar-17) led to the few
Discoms not transferring a substantial part of the
debt to state government. However we note that
UDAY bonds have been issued by states (Rs 1.83tn)
for a substantial part of the Discom transferable debt,
which is highly commendable in our view.

Discom Debt Transfer Differs Across States

State (Rs bn)
Andhra Pradesh
Bihar North
Bihar South
Chattisgarh
Haryana
Jharkhand
Madhya Pradesh
Maharashtra
Punjab
Rajasthan Ajmer
Rajasthan Jaipur
Rajasthan Jodhpur
Uttar Pradesh
Total

Debt as on 30th
Sept 2015

Transferrable
debt

147.21
12.83
18.27
17.40
346.00
11.65
347.39
220.97
208.38
265.97
280.56
258.77
532.11
2,667.51

88.93
9.62
13.70
13.05
259.50
8.74
260.56
49.60
156.28
199.48
210.42
194.08
399.08
1,863.04

Yearly Debt amount transferred to State

FY17
FY18
FY19
FY20
57.31
31.62
6.41
3.21
9.13
4.57
8.70
4.35
173.00
86.50
5.83
2.91
75.68
46.22
46.22
46.22
9.92
9.92
9.92
9.92
104.19
52.09
132.99
66.49
140.28
70.14
129.39
64.69
266.06
133.03
1,118.89
575.74
56.14
56.14

FY21

46.22
9.92

56.14

Source: Various MoUs, HDFC Sec Inst Research

Page | 5

POWER : SECTOR UPDATE

Karnataka and Maharashtra

can turn in the black if their
interest cost reduces by 75%.
However debt of these
Discoms is not being taken
over by State.

Of the Discoms which are not transferring 75% of

total debt over the next two years, most of them
(Karnataka J&K, Maharashtra & Madhya Pradesh)
incur losses post subsidy. Savings from interest cost
can meaningfully move the needle for most of these
states. In fact Karnataka and Maharashtra can turn in
the black if their interest cost reduces by 75%.

Cumulative Discom Interest Cost And PAT Trends

Interest Cost

Loss after subsidy

Rs mn
70,000
60,000
50,000
40,000

Cumulative interest cost of all Discoms stood at Rs

403bn for FY15. Considering Rs 583bn of Discom
losses for FY15, a 75% reduction in interest cost can
substantially change the fortunes for the Discom
finances. Given that a substantial portion of the debt
has been transferred (and bonds have been issued),
we expect a reduction in Discom losses in FY18E
(even if other variables are unchanged).

30,000
20,000
10,000
0
2013

2014

2015

Source: PFC report on utilities, HDFC Sec Inst Research

Interest Cost For Discoms Not Transferring 75% Of Total Debt In 2 Years
Cumulative interest cost
constitute a substantial
portion (69%) of Discom losses
for FY15

FY15 (Rs mn)

Goa
Gujarat
Jammu & Kashmir
Karnataka
Manipur
Puducherry
Uttarakhand
Maharashtra
Madhya Pradesh

Interest cost

Total exp

80
7,490
670
11,100
0
0
1,450
28,190
7130

13,330
355,310
57,420
264,930
3,790
9,980
47,550
579,540
269,130

Discom PAT after

subs
-430
16,290
-42,640
-2,870
0
2,310
-1,150
-17,140
-47,570

Interest as % of
total exp
0.6%
2.1%
1.2%
4.2%
0.0%
0.0%
3.0%
4.9%
2.6%

Interest as % of
PAT
-19%
46%
-2%
-387%
NA
0%
-126%
-164%
-15%

Source: PFC report on utilities, HDFC Sec Inst Research

Page | 6

POWER : SECTOR UPDATE

Tariff increase : a lot realistic and calibrated

Weighted average tariff hike
is likely to ~ 4.6% (based on
MoU targets) over the next 5
years

All the UDAY MoUs specify for - (1) quarterly tariff

revision particularly to offset fuel price increase, (2)
timely filing for tariff petition to the regulator so that
tariff order can be released as early as possible and
(3) timely preparation of accounts to ensure timely
filing of tariff petition.
Based on individual MoUs, the cumulative tariff
increase is likely to be ~4.6% over the next 5 years
(vs. ~8.0% over the last 5 years), which we think is
quite realistic. Among the larger states, only a few

like Bihar, Chhattisgarh, Jharkhand and J&K stand as

outliers with stiff targets for tariff increases.

Our interaction with few states suggests that most of

them do undertake quarterly tariff revision for fuel
price escalation. However, most of them lag in terms
of timely accounts preparation and tariff filing.

Essentially the focus under UDAY is to ensure timely

tariff increases (better absorption with consumers) to
avoid a large shock later on.

Proposed Tariff Increase By UDAY States

Bihar, Chhattisgarh,
Jharkhand and J&K stand as
outliers with stiff targets for
tariff increases

State
Andhra Pradesh
Bihar North
Bihar South
Chattisgarh
Goa
Gujarat
Haryana
Jammu & Kashmir
Jharkhand
Karnataka
Madhya Pradesh
Maharashtra
Manipur
Puducherry
Punjab
Rajasthan Ajmer
Rajasthan Jaipur
Rajasthan Jodhpur
Uttar Pradesh
Uttarakhand
Weighted average

FY16
0.00
2.40
2.40
14.25
14.00
0.00
0.00
9.60
Rs 0.18*
11.06
-0.75
NA
4.35
0.00
0.00
0.00
0.00
5.47
7.15

Source: Various MoUs, HDFC Sec Inst Research

FY17
FY18
FY19
5.00
3.60
5.00
10.00
15.00
10.00
10.00
15.00
10.00
10.00
6.00
5.00
5.00
5.00
8.00
0.00
0.50
0.50
As per regulatory orders from time to time
15.00
17.00
19.00
9.60
9.60
9.60
Rs 0.48*
3.50
5.60
8.33
5.00
3.00
2.59
9.01
8.92
8.25
15.02
16.96
3.00
3.00
3.00
5.00
9.00
3.00
10.00
8.00
0.00
10.00
8.00
0.00
10.00
8.00
0.00
5.75
6.95
6.80
4.52
4.27
4.12

FY20
5.00
10.00
10.00
NA
NA
NA

Average
3.72
9.48
9.48
8.81
8.00
0.25

19.00
NA
NA
3.00
NA
NA
NA
NA
NA
NA
NA
6.60
NA

14.00
9.60
4.55
6.08
4.94
13.41
3.34
4.25
4.50
4.50
4.50
6.31
5.02
4.61

*Note represent absolute amount of increase and not percentage increase

Page | 7

POWER : SECTOR UPDATE

UDAY scheme plans to reduce

the pan-India AT&C losses
from 22% to 15% by FY19

Reduction in AT&C losses : the big fish to catch

Amongst the states subscribed

to UDAY, J&K has the highest
percentage of AT&C losses
which is followed by Bihar

Currently billing efficiency is

low around 79%, while
collection efficiency is
comfortable at 97%

High AT&C losses have been a chronic issue for most

of the Discoms in the country. UDAY scheme plans to
reduce the pan-India AT&C losses from 22% to 15%
by FY19. While the headline aggregate target appears
achievable, the same look extremely stretched for
several individual Discoms.

Haryana, J&K, Jharkhand and Rajasthan) the targets

for loss reduction are more than 4.0% p.a. The same
looks quite high considering the historical track
record.

Of the 17 states, 9 states (table below) have a target

to reduce the AT&C losses by more than 2.5% per
annum. For some of the larger states (UP, Bihar,

These 9 states cumulatively constitute ~30% of power

consumption in the country. Hence an improvement
on this front is extremely critical to bring sanity to
Discom finances in the longer run.

Discoms With High Targets For AT&C Loss Reduction

State
Bihar North
Bihar South
Haryana
Jammu & Kashmir
Jharkhand
Madhya Pradesh
Manipur
Puducherry
Rajasthan Ajmer
Rajasthan Jaipur
Uttar Pradesh

FY16
40.00
44.00
28.05
56.00
35.00
26.27
NA
19.88
23.50
27.50
32.36

FY17
34.00
38.00
24.02
46.00
28.00
21.15
25.15
19.00
20.00
22.00
28.27

FY18
28.00
30.00
20.04
35.00
22.00
19.15
18.70
15.00
17.50
18.50
23.63

FY19
20.00
22.00
15.00
25.00
15.00
17.00
15.00
12.00
15.00
15.00
19.36

FY20 Avg reduction p.a

15.00
6.67
15.00
7.33
NA
4.35
15.00
10.33
NA
6.67
15.00
3.09
NA
5.08
NA
2.63
NA
2.83
NA
4.17
14.86
4.33

Source: Various MoUs, HDFC Sec Inst Research

Billing Efficiency Needs To Improve; Collection Efficiency Reasonable

One of the key reasons for high AT&C losses is the

low billing efficiency (79% - FY14 audited) in the
country. The collection efficiency is comfortable at
97%. While improvement is needed across all regions,
the problem is more pronounced in the north, east
and north-eastern part of the country.

Our interaction with the industry participants

suggests that low billing efficiency is a serious
administrative issue. These problems exist both in
urban and more so in rural areas. However the
problem is extremely low at private Discoms like that
of CESC, Tata and Reliance. UDAY states have
targeted to substantially improve the billing efficiency
to ~85% levels by FY19E.
Page | 8

POWER : SECTOR UPDATE

Substantial progress has been

achieved in installation of
feeder metering with ~94% of
target achieved till date

Our interaction with some of the state discoms

suggest that efforts are certainly been made to
reduce the Discom losses. Projects have been lined
up for (a) feeder separation (b) installing new
DT/meters and replacement of faulty meters (c) close
performance monitoring and high accountability
systems for engineers. Funds under IPDS and DDUGJY
would be utilised for these projects.
With steps being initiated we believe there would
certainly an improvement going ahead. However the
actual achievement could well be short of the
ambitious targets set under UDAY.

Billing Efficiency Needs Substantial Improvement

Billing Efficiency (%)

Collection Efficiency (%)

AT & C Losses (%)

100%
80%
60%
40%
20%
0%
West

South

North

North
East

East

All India

Source: MoP, HDFC Sec Inst Research *Note: FY14 audited data

MoU Targets For Improvement Of Billing Efficiency

Improvement in billing
efficiency holds key to
reduction in AT&C losses

Andhra Pradesh
Bihar North
Bihar South
Chattisgarh
Goa
Gujarat
Haryana
Jammu & Kashmir
Jharkhand
Karnataka
Madhya Pradesh
Maharashtra
Manipur
Puducherry
Punjab
Rajasthan Ajmer
Rajasthan Jaipur
Rajasthan Jodhpur
Uttar Pradesh
Uttarakhand

FY16
NA
68.00
62.00
79.27
87.71
85.50
72.68
49.40
73.00
85.26
75.38
86.50
NA
NA
84.68
76.50
72.50
69.00
76.43
83.11

FY17
94.54
72.00
66.00
80.78
87.37
86.00
76.75
58.70
77.00
86.75
78.85
86.75
74.85
86.00
84.70
80.00
78.00
72.00
78.29
84.08

FY18
94.55
76.00
70.00
81.74
86.89
86.50
80.77
69.10
80.00
87.00
80.85
87.00
81.30
86.00
85.50
82.50
81.50
73.50
80.82
85.07

FY19
94.56
80.00
78.00
85.28
85.00
87.00
85.86
78.10
85.00
87.25
83.00
87.25
85.00
89.00
86.00
85.00
85.00
85.00
84.10
85.56

FY20
NA
85.00
85.00
NA
NA
NA
NA
87.70
NA
NA
85.00
NA
NA
NA
NA
NA
NA
NA
88.04
NA

Source: Company, HDFC Sec Inst Research

Page | 9

POWER : SECTOR UPDATE

To ensure 24*7 power supply in rural areas as well as

power for agricultural purpose, feeder segregation
has been initiated. With the help of funds under
DDUGJY, 65% of feeder meters have been
segregated. The ministry has targeted to complete
100% metering by Mar-18.

100%

UDAY lays extremely high focus on installation of

smart meters. However progress on the same is yet
to pick up. Various MoUs target for 100% smart
metering by Dec-2019, the achievement of which
would be highly critical for the success of UDAY
scheme.

0%

DT Metering Yet To Pick Up

40%

Source: MoP, HDFC Sec Inst Research

Smart Metering Little Long Drawn

80%

80%

40%

40%
2%

0%

Smart Metering
above 500 kWH

Smart Metering
200 to 500 kWH

20%

DT Metering
(Rural)

DT Metering
(Urban)

0%

Source : MoP, HDFC Sec Inst Research

Achievement so far (%)

60%

43%

20%

Feeder
Segregation

20%

100%

52%

65%

60%

100%

60%

96%

80%

Achievement so far (%)

Various MoUs target for 100%

smart metering by Dec-2019,
the achievement of which
would be highly critical for the
success of UDAY scheme

100%

2%

0%

Smart Metering
200 to 500 kWH

Achievement so far (%)

Feeder
Metering
(Rural)

Feeder Metering Substantial Achievement

Smart Metering
above 500 kWH

With substantial achievement

witnessed in feeder metering,
states to focus on DT metering
and smart meters

Within last one year substantial progress has been

made on feeder metering (both rural and urban) with
over 95% achievement.

Feeder
Metering
(Urban)

0%

Source : MoP, HDFC Sec Inst Research

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POWER : SECTOR UPDATE

Annual losses from the 17

states are expected to improve
from loss of Rs 373bn to profit
of Rs 74bn over FY16-FY19E

Based on MoU targets only 6

states are expected to be
profitable by FY18E, rest
would turn profitable by FY20E

PAT after subsidy : a mix of reasonable and aggressive assumptions

tariff hikes and volume growth. Rajasthan is likely to

benefit from transfer of debt to state with its historic
interest cost (FY13-FY15) as high as 20% of its total
costs.

Annual losses from the 17 states are expected to

improve from loss of Rs 373bn to profit of Rs 74bn
over FY16-FY19E. This reduction is primarily on the
back of reduction in interest cost and AT&C losses.
Some of the states have also assumed strong growth
in volumes (confluence of improvement in billing
efficiency and growth in power demand).

Even based on MoU targets only 6 states would be

profitable by FY18E. Most of the states are expected
to be profitable only by FY20E.

Top 5 states (Bihar, MP, Maharashtra, Rajasthan, UP)

contribute ~79% of the total loss in FY16. For
Maharashtra and MP, where debt is taken over a 5
year period, reduction in losses is mainly a function of

With miniscule tariff hikes over the past 3 years (~3%

average), Bihar has proposed an average tariff hike of
9.5% over FY16-FY20E. To add on, Bihar incurs the
2nd highest AT&C loss in the country (40% in FY16).
This is likely to post significant challenges for Bihar to
achieve profitability by FY20E.

Except for the state of Maharashtra, profit estimates

of all states factor in substantial improvement in
billing efficiency.

MoU Target For Improvement In PAT (After Subsidy) - Key Loss Making States
States (Rs bn)

FY16

FY17

FY18

Bihar

(41.57)

(38.24)

(3.88)

Madhya Pradesh

(42.38)

(22.78)

(11.88)

Maharashtra

(30.15)

(26.39)

7.48

(102.20)

(21.95)

7.00

(77.24)

(50.12)

(26.21)

(293.54)

(159.48)

(27.49)

Rajasthan
Uttar Pradesh
Total

FY19 Remarks
- Turnaround is highly contingent on reduction
in AT&C losses from 40% (FY16) to 15% (FY20).
1.73
- Estimates also factor in ~9.5% average tariff
hike over FY16-20E.
- Have factored in sharp improvement in FY17
- 8.3% hike in tariffs (~11% in FY16) and 5%
improvement in AT&C losses (from 26.3% to
(2.25)
21.2%)
- No major reduction in interest cost as debt
transfer is done over a 5 year period.
Function of 6% volume growth and 10% tariff
61.09
hike
Savings from Sharp reduction interest cost. But
7.46 aggressive assumption of ~15% revenue growth
(with only 4.5% tariff growth)
Aggressive assumption of ~40% revenue growth
5.68
(with only ~6% tariff growth)
73.71

Source: Various MoUs, HDFC Sec Inst Research

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POWER : SECTOR UPDATE

MoU Target For Improvement In PAT (After Subsidy) - Other States

States (Rs bn)
Andhra Pradesh
Chhattisgarh
Goa
Gujarat
Haryana
Jammu & Kashmir*
Jharkhand
Karnataka
Manipur*
Puducherry
Punjab
Uttarakhand
Total

FY16
(4.95)
(2.24)
0.94
1.94
(27.25)
NA
(23.59)
(5.01)
NA
(0.10)
(18.39)
(0.77)
(79.41)

FY17
(1.70)
26.94
1.32
3.01
(29.11)
(9.20)
(23.22)
0.00
(1.64)
(0.19)
(16.81)
(0.41)
(51.01)

FY18
(0.19)
6.33
2.05
3.13
(18.78)
(9.59)
(16.63)
0.55
(0.87)
(0.00)
(2.20)
0.11
(36.09)

FY19
0.34
11.03
NA
4.56
(4.56)
(7.22)
(9.41)
0.04
0.08
0.00
4.67
0.35
(0.11)

*Note: FY15 loss stands at Rs 4.3bn/Nil bn for J&K/Manipur

Source: Various MoUs, HDFC sec Inst Research

FY15 Discom performance - Still in the woods

Top 4 loss making states
(Uttar Pradesh, Rajasthan,
Tamil Nadu and Madhya
Pradesh) contribute to 78% of
the cumulative losses of
Discoms

Persistent losses by Discoms

have led to further ballooning
of cumulative Discom debt
from ~Rs 2.4tn to ~Rs 4.3tn
over FY12-15 period

Cumulative Discom losses, though declining (from Rs

673bn in FY14 to Rs 583bn in FY15), continue to paint
a worrisome picture for the power sector. As always
the skew continues with the top 4 loss making states
(Uttar Pradesh, Rajasthan, Tamil Nadu and Madhya
Pradesh) contributing to 78% of the cumulative losses
of Discoms.
Persistent losses have led to further ballooning of
cumulative Discom debt from ~Rs 2.4tn to ~Rs 4.07tn
over FY12-15 period. On the flip side, 5 Discoms

(Gujarat, West Bengal, Karnataka,

Puducherry) reported profits in FY15.

Delhi

and

With net worth being completely wiped out, Discoms

have been functioning on borrowed funds. High
interest rates (12%-15%) on these borrowed funds,
has been a burden on the profitability of these
Discoms.

Increasing subsidy to Discoms has largely led to

narrowing of gap from 0.8 Rs/kwh in FY13 to 0.6
Rs/kwh in FY15. Subsidy cannot continue indefinitely
and therefore is a worrisome factor for Discoms.

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POWER : SECTOR UPDATE

FY15 Discom Performance

Overall loss of Discoms
reduced 13.5% from Rs
673.4bn in FY14 to Rs 582.8bn
in FY15

Major reduction in loss was

witnessed in states of Bihar,
Haryana, Rajasthan and UP

Delhi, Gujarat and West

Bengal continue to be
profitable

Performance worsens in the

states of AP, J&K, Kerala,
Punjab and Tamil Nadu

State (Rs bn)

Andhra Pradesh
Arunachal Pradesh
Assam
Bihar
Chhattisgarh
Delhi
Goa
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Odisha
Puducherry
Punjab
Rajasthan
Sikkim
Tamil Nadu
Telangana
Tripura
Uttar Pradesh
Uttarakhand
West Bengal
Total

FY14
(13.79)
(4.28)
(6.93)
(42.93)
(6.30)
3.53
(0.04)
0.95
(35.54)
(1.37)
(23.87)
(0.71)
(5.34)
1.16
(63.76)
(2.80)
(1.94)
(2.95)
(1.92)
(1.91)
(3.42)
(0.60)
2.49
(156.45)
0.33
(140.52)
0.00
(0.62)
(167.25)
3.23
0.19
(673.36)

FY15
(25.49)
(2.57)
(5.78)
(12.39)
(15.69)
4.18
(0.17)
1.08
(21.17)
(1.25)
(39.13)
(0.37)
0.84
(12.73)
(50.01)
(3.66)
0.00
(2.02)
(1.92)
(3.15)
(9.28)
1.57
(11.00)
(124.74)
(1.26)
(127.57)
(29.12)
(0.82)
(86.75)
(2.60)
0.20
(582.77)

Remarks
Loss widens

Substantial loss reduction

Profitability continues
Profitability continues
Substantial loss reduction
Loss widens

Performance worsens substantially

Achieves break even

Performance worsens substantially

Still a long way for reduction in losses
Lower realizations leading to under recovery of costs
Started operations in FY15
Major improvement with loss reduction of ~48%
Profitability continues

Source: PFC report on utilities, HDFC Sec Inst Research

Page | 13

POWER : SECTOR UPDATE

Financial Snapshot Of Discoms

Particulars (Rs bn)
Loss on subsidy received basis
PAT Margin

With net worth being

completely wiped out,
Discoms have been
functioning on borrowed funds

Subsidy Received
Subsidy Received as a % of Revenue
ACS (Rs./kwh)
Avg. Revenue on subsidy received basis (Rs./kwh)
Gap on subsidy received basis (Rs./kwh)
Power Purchase (including own generation) (bn units)
Power Purchase Cost (incl. generation cost)
Power Purchase Cost as % of Total Expenditure
Aggregate Technical and Commercial Losses

ARR-ACS Gap has narrowed

from 0.8 in FY13 to 0.6 in FY15.
However this reduction is
mainly led by increase in
subsidy.

Net Worth
Accumulated Losses as per Balance Sheet
Total Outstanding Loans
State Government Loans
State Govt. Loans as a % of Total Loans

FY13
(716.2)
(22.5%)

FY14
(673.4)
(18.9%)

FY15
(582.8)
(14.6%)

361.0
12.5%

367.6
11.1%

461.1
12.5%

5.0
4.2
0.8

5.2
4.4
0.8

5.2
4.6
0.6

844.7
3,196.4
75.2%

888.4
3,514.0
76.3%

966.6
3,947.7
78.6%

25.5%

22.6%

24.6%

(1,720.7)
(2,537.0)
3,042.3
334.9
11.0%

(2,076.6)
(3,051.8)
3,650.1
296.3
8.1%

(2,430.2)
(3,607.4)
4,068.3
426.1
10.5%

Source: PFC report on utilities, HDFC Sec Inst Research

Page | 14

POWER : SECTOR UPDATE

Annexure 1 : Key obligations of various parties under the tripartite MoU

Under UDAY, obligations of
GOI are more to do facilitating
debt transfer and helping
states in reducing the cost of
power (adequate coal
availability and coal
rationalization)

Obligation of Government of India

Facilitate states to take over 75% of Discoms debt

outstanding as on 30th September 2015.

For meeting working capital requirements of

Discoms, banks / FIs to lend only upto 25% of Discom
previous year annual revenues.

Ensuring availability of coal at reasonable prices

through rationalization of coal linkages.

Facilitating states to get additional and priority

funding through schemes such as IPDS and DDUGJY.

Obligation of Respective States

The success of UDAY hinges

substantially on improvement
in operational efficiencies of
Discoms. States also have a
major role to play in the same.

To take over 75% of outstanding debt of Discoms as

on 30th September 2015, based on the timelines as
agreed to in states respective MoUs.
Ensure that Banks / FIs do not advance short term
debt to Discom to finance their losses.

Part of future losses of Discoms to be taken over by

the respective states in the following manner:

Year
2017-18
2018-19
2019-20
2020-21
Loss to be
5% of loss 10% of loss 25% of loss 50% of loss
taken over
of 2016-17 of 2017-18 of 2018-19 of 2019-20
by state
Source: Various MoUs, HDFC sec Inst Research

Replacement of street lights with LEDs through

Municipal Corporations.

Obligations of Discoms

With an intension to offset rise in fuel prices, Discoms

to revise tariffs on a quarterly basis.

Improve operational efficiency with installation of

smart meters; upgrade transformers and meter and
promoting energy efficient LED bulbs.

To timely file tariff petition, so that tariff orders for

the year, can be issued at the earliest.

Comply with the Renewable Purchase Obligation

(RPO) outstanding since 1st April, 2012.

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POWER : SECTOR UPDATE

Annexure 2 : Key government schemes under Power for all

Integrated Power Development Scheme (IPDS)
IPDS is focused towards urban
area, whereas DDUGJY is
centered for improving the
electrification in rural areas

Under IPDS and DDUGJY, GOI

would provide financial
support to the extent of
75%/90% of project cost to
Other than special category
states/special category states

The Union Cabinet approved IPDS in Nov-14 with the

objective of strengthening of sub-transmission and
distribution networks and metering of distribution
transformers / feeders in the urban areas. The total
outlay estimated by GOI under the scheme is Rs
326.1bn.
Measures under IPDS include end to end metering;
improvement in billing & collection efficiency; and up
gradation of electric assets. This will enable Discoms
to identify high loss pockets and undertake remedial
measures to reduce their AT&C losses (a step closer
to the targets set under UDAY).
Financial assistance under IPDS is available for all
Discoms including private sector Discoms and State
Power Departments. GOI will provide financial
support to the extent of 75% of project cost (60%
basic + additional 15% on achievement of prescribed
milestones) for other than special category states.
Support from GOI goes higher to 90% for the special
category states which include North Eastern States,
Himachal Pradesh, J&K among others.

Deendayal Upadhyaya Gram Jyoti Yojana

(DDUGJY)

With IPDS focused on urban area, DDUGJY was

centered on for improving the distribution and
electrification in rural area. For this purpose, the
cabinet has approved an outlay of Rs 392.8bn. The
structure of financial assistance under DDUGJY is
similar to IPDS.

Power requirement varies among agricultural and

non agricultural consumers. Measures under DDUGJY
include installation of separate feeders for the two
types of consumer. This is to ensure power is
available 24*7 for non agricultural consumers, when
sub-station for agricultural supply is switched off. The
scheme also aims at achieving rural electrification
and strengthening of sub-transmission and
distribution networks.

In terms of rural electrification, DDUGJY scheme has

made substantial progress in attaining its objectives,
with ~98.9% of villages in India being electrified.

With over 2 years from the approval of the scheme,

GOI has already approved grants of Rs 160.2bn for
various states, of which Rs 14.2bn has been
disbursed. Disparity continues with top 6 states (UP,
West Bengal, Maharashtra, Bihar, Tamil Nadu and
MP) being sanctioned ~57% of the grants under IPDS.

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POWER : SECTOR UPDATE

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