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Power - Power demand recovers as lockdown eases - ICICI Securities

Posted On: 2021-06-10 14:41:23 (Time Zone: UTC)

In the past week, power demand witnessed substantial recovery on the back of lockdown easing, which has resulted in increased economic activity, and also due to hot weather conditions in the Northern and Eastern regions. From 1st-8th Jun'21 (just one week), all-India daily/peak demand recovered by 10%/9% to 3,889MU/173GW as lockdowns were relaxed. If this momentum continues, power demand may soon cross the peak levels of Feb/Mar'21, as commercial and economic activities are still some way away from their highs. Thermal PLFs continued to be strong at 67% in Apr'21, due to which Coal India's FY22-TD (till 8th Jun'21) offtake increased to 124mnte (vs 90.4mnte YoY). Renewable generation is peaking at ~35GW during the day while peak thermal generation stands at ~120GW. Resilient power demand, among other positive developments in the sector, has aided BSE Power index to rise 18.3% in FY22 (45% in CY21). We expect action in the RE space to revive soon and regulations/policies to improve the sector dynamics to continue. NTPC, CESC, PTC India, and Coal India remain our top picks.

- Tide turns for power demand as lockdowns ease: With decline of covid second wave and opening up of the economy, demand is witnessing reversal towards the peak levels of Feb/Mar'21. From 1st-8th Jun'21, all-India daily/peak demand recovered by 10%/9% to 3,889MU/173GW, which we expect to further improve from 15th June when most states are expected to ease lockdowns. Major demand increase has occurred in the Northern region, which is witnessing peak summer temperatures and increased economic activities due to considerable lifting of lockdowns.

- Daily demand back to >170GW: Analysing the daily 15-minute load curve as well, we find that peak power demand has recovered from 155-160GW during third week of May'21 to 170-175GW currently. Average daily demand during the same period has improved from 140-145GW to 160-165GW. Thermal (coal + lignite) generation remains high during the non-solar hours of the day, ranging between 110-120GW. During solar hours, thermal generation declines to 104-110GW. Renewable generation is higher during the day, but changing wind patterns keep generation during non-solar hours erratic and unpredictable. Between 10AM-3PM, renewable generation ranges between 30-35GW, but declines to as low as 10GW late night. Hydro and gas generation are used for load balancing purposes, while nuclear generation is consistent throughout the day since it is used for base load.

- Higher coal PLFs help improve Coal India's offtake: Till 8th Jun'21 on MTD basis, production was 11.6mnte (up 5.7% YoY) and offtake was 14.8mnte (up 30% YoY). Till 8th Jun'21 on YTD basis, production was 95.6mnte (vs 92.7mnte YoY) and offtake was 124mnte (vs 90.4mnte YoY). At current rate, YTD offtake surpasses FY20 levels as well although production is slightly lower. Coal inventory at power plants is on an increasing trend at 16 days as CIL pushes supply. However, elevated coal PLFs due to increasing power demand will keep coal offtake firm.

- Export of coal procured through e-auctions now allowed: As per media sources, another important development has been that Coal India has allowed reselling of coal procured through e-auctions for export purposes. Onus on compliance regarding coal exports is on the exporter. The provisions are applicable for spot as well as special spot e-auctions. This will further aid in improving e-auction volumes as well as premiums. This along with the proposal to hold common auctions for all categories of customer will increase transparency and is likely to fetch better premiums in the auctions.

- BSE Power index rises to 18.3%: Resilient power demand, among other positive developments in the sector, has aided BSE Power index to rise 18.3% in FY22 (45% in CY21). Several stocks have rerated but some are still below their book values, especially PSU stocks, on which we remain positive. CPSUs have consistently given strong core performance over the past few quarters and their earnings growth remains robust. Dividend payout for most PSUs for FY21 will be at least as per the policy set by GoI (higher of 5% of net worth, or 30% of net profits). Top picks: NTPC, CESC, PTC India, and Coal India.

Source: Equity Bulls

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