PFC Ltd: Improving fundamentals supported by growth
04-12-2023

Improving landscape of the Indian Power sector: 

The power sector in India, particularly in the realm of electricity distribution companies (Discoms), has witnessed a positive transformation in recent years:

• Reforms implemented by the government under the Revamped Distribution Sector Scheme (RDSS) have led to notable improvements. 
• All India-level AT&C losses (Aggregate technical and commercial losses ie. Electricity lost between generation to end use) have decreased from 21.5% in FY21 to 16.5% in FY22, signifying better operational efficiency. 
• The ACS-ARR gap, representing the revenue gap per unit of electricity sold, has significantly improved to 40 paise per unit in FY22 compared to 89 paise per unit in FY21.

Additionally, implementing the Late Payment Surcharge (LPS) Rules has substantially reduced legacy dues payable by distribution utilities from a peak of Rs. 1.4 lakh crore to Rs. 66,478 crore. This fiscal discipline in the sector, aided by rigorous monitoring of dues through the PRAAPTI portal, has benefited all stakeholders across the power sector value chain.

Major Generation, Transmission, and distribution companies are planning significant Capex : 

Capital expenditure (capex) initiatives by major players like NTPC and Power Grid Corporation drive growth prospects for entities like PFC. Power Grid Corporation foresees substantial investments exceeding Rs. 4 lakh crore in the transmission sector over the next 7 to 8 years, estimating its transmission capex at Rs. 1.71 lakh crore up to 2032.

The Indian Renewable Energy Development Agency Ltd (IREDA) which recently came up with an IPO highlighted that installed renewable power capacity is expected to reach 595 GW(Gigawatt) by FY2032 and account for 66% of the total power generation capacity. A total outlay of Rs. 24 trillion is expected for renewable capacity additions between FY23 to FY32.

Similarly, NTPC aims to expand its capacity to over 130 GW by 2032 with a planned capex of approximately Rs. 3 lakh crore over the next 7 years. This includes adding 10 GW of conventional capacity (coal) with an estimated capex of Rs 80,000 crore within the next 3 years. Additionally, NTPC plans to increase its renewable capacity by 16 GW with an estimated capex of Rs. 90,000 crore.

These substantial capex plans by major power generation and distribution companies signify manifold growth opportunities for PFC, the NBFC financing the power sector. The positive trends in the sector's financial health, particularly improvements in Discoms' operational efficiency and significant capex plans by key players, indicate a favorable environment for PFC's growth and financing activities within the power sector.