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Wednesday, November 25, 2009

KG basin gas supply to light up the future

The performance of the domestic power sector for the quarter to September 2009 has been interesting, with moderate growth in sales, high growth in operating profit, and a marginal growth in net profit. This contrasts with its average performance over four quarters prior to this, when sales and net profit growth was much higher, but operating profit grew at a moderate rate.

Sales recorded a growth of 12% against average growth of 20% recorded in the previous four quarters. On the other hand, the profitability at the operating level has seen an impressive improvement with a 28% growth rate against an average of barely 7.4% for the past four quarters.

The improvement in operating performance comes about with a decline in fuel prices, which
accounts for nearly 60% of sales.

However, at the net level, the profit growth has again fallen to barely 4.3%, which was at a high of 20% for an average of the past four quarters. This is mainly because of the nearly 50% increase in depreciation burden and the 25% increase in interest outgo.

Most of the companies in the sector are undertaking large capacity expansion in a short-supply market. These companies have invested nearly Rs 40,000 crore in FY09 for capacity expansion.

While the financial performance of the sector continues to remain volatile, the outlook has significantly improved, following the production of
natural gas from K-G basin. The increase in gas availability has enabled companies to fully utilise their gas-based plants, which were otherwise only adding to fixed costs.

Gas availability enabled companies such as GMR infrastructure, GVK Power, Torrent Power and Lanco, to either commission some of their gas-based power plants, which were lying idle for want of gas or increase the utilisation of the plant.

Companies engaged in distribution have reported lower sales growth of 7%, but higher growth in operating profit of 47%. This is indicative of improving efficiency of the business, marred by theft and other commercial losses, until some time ago. Companies in pure generation reported sales growth of 15%, but lower growth of 23% in operating profit.

Among individual firms, NTPC reported a 12% growth in sales, although profits grew by barely 2%, largely due to various adjustments reducing the
tax outgo in the previous year, whereas Tata Power recorded a sales decline of 12% and a profits decline of 30%.

Torrent Power recorded the highest growth in profits at 95%, with sales growing 26%, aided by the commissioning of its plant.

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