Tuesday, August 6, 2013

Blackout Remedy Plan to Get $1.6 Billion Boost: Corporate India

Customers shop for vegetables at a market in Kotla Mubarakpur, New Delhi. More than a quarter of the electricity generated in the country is lost in transmission because of theft and dissipation through wires. Photographer: Sanjit Das/Bloomberg

Power Grid Corp. of India Ltd., blamed for a network collapse that left more than half the nation’s population without electricity a year ago, will boost a $16.5 billion investment plan by 10 percent as it seeks to prevent a recurrence.

A further 100 billion rupees ($1.6 billion) will be spent in the five years to March 2017 to complete projects, Chairman R.N. Nayak said in an interview. The company, based in Gurgaon near New Delhi, plans to offer new shares to finance the additional investment after it sold 39.7 billion rupees of bonds last month. 

Power Grid is doubling its transmission capacity and investing in systems to avoid the kind of outage that shuttered factories, halted transport and left about 620 million people in the dark on July 30 and July 31 last year. The company has increased penalties to discourage provinces from drawing power in excess of their allocations, a breach that had caused the northern grid to break down.

“We’ve have come a long way since last year’s blackouts,” said Debasish Mishra, a partner and head of the energy practice at Deloitte Touche Tohmatsu India Pvt. in Mumbai. “Grid discipline has improved considerably and chances of a second such blackout are really thin.”

Power Grid shares reversed the biggest decline in almost five years on Aug. 2, following an announcement to sell 694 million new shares, or 15 percent of the existing stock. The shares rose 2.1 percent to 93.30 rupees at the close in Mumbai.


Surprise Sale

Analysts, who had expected Power Grid to use its 28.7 billion rupees of cash and equivalents to meet its funding requirement, were surprised by the share-sale statement. Since January, the company had said it was ready to change its 70:30 debt-equity mix to 75:25 and a share sale was not on cards in the year ending March 31, said Anubhav Gupta, an analyst at Kim Eng Securities Pvt. in Mumbai.

“Although there had always been an overhang of a possible equity dilution, we didn’t expect it to happen this year,” Gupta said. “They don’t have a cash crunch.”

Of the 43 analysts covering the company, 39 recommend investors buy the stock, while two suggest selling.
While stringent restrictions have succeeded in avoiding a large-scale grid failure, outages continue to plague large swathes of the country.

“That’s not going to change in a hurry,” Mishra said. “States that now risk heavier penalties for overdrawing power, are simply not buying enough.”


Lost in Transmission

More than a quarter of the electricity generated in the country is lost in transmission because of theft and dissipation through wires. Distribution utilities, unable to retrieve their costs from government-regulated tariffs, accumulate debt and losses and cut purchases.

India plans to spend 13.73 trillion rupees to expand and upgrade its power systems in the five years to March 2017, much of the investment coming from generators including state-owned NTPC Ltd. (NTPC), Tata Power Ltd. (TPWR) and Reliance Power Ltd. (RPWR) The nation, which has a capacity to generate almost 226 gigawatts, plans to add 118 gigawatts of capacity during the period, including 30 gigawatts of renewable energy, according to the Planning Commission.


Higher Profit

Power Grid will invest 22.2 billion rupees in the year ending March 31, compared with an earlier plan of 20 billion rupees, Nayak said. The company has so far raised 80 billion rupees of debt in the year started April 1, he said.

Proceeds of the share sale, estimated at 63.4 billion rupees based on the last price, will help the company fund the equity portion of its investment plan for the next three years, Nayak said.

First-quarter profit at Power Grid, which reported earnings on Aug. 2, rose 20 percent to 10.4 billion rupees after it transmitted more electricity through its so-called 115,000 circuit-kilometer (71,472 circuit-mile) network. Sales rose 23 percent to 35.6 billion rupees. Power Grid plans to expand the network to 140,000 circuit-kilometers by March 2017, Nayak said.

The company is developing 11 high capacity transmission corridors to haul electricity from generation projects spread across more than eight states, according to its website. Power Grid is also building a transmission system for Tata Power, which has set up a 4,000 megawatt project at Mundra in the western state of Gujarat, and Reliance Power, which is building a similar sized plant at Sasan in the central province of Madhya Pradesh.

“Power Grid’s project executions are timely and growth is stable,” Gupta of Kim Eng Securities said. “A change in the negative sentiments about the power sector can trigger an upgrade for the stock.”

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net
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