Discoms Note - IVTC

This publication and its contents are the property of Investec and are intended solely for the
use of Mehul Soni.

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Sector Research
02 November 2022 $AggregNam e2$
India Power Utilities

Sector review Company Rec Target
CESC Ltd Buy INR115

NTPC Ltd Buy INR220
State DISCOMs: Reading the Riot Act! Power Grid Buy INR220
Tata Power Co. Ltd Sell INR235
Our detailed analysis of the recently released FY21 state DISCOM financials Torrent Power Ltd Sell INR412
point to a bleak future. We fear operational improvements alone cannot drive
a turnaround, as financial mismanagement is a much larger malaise (Fig 1).
Breaking the viscous cycle (of operational inefficiencies impacting financials,
in turn destroying the capex appetite) will require politically and fiscally
unpalatable decisions around tariff hike/s along with debt re-pricing/re-
structuring. Private DISCOMs’ contrasting outperformance is glaring &
strengthens the case for privatisation, which can unlock major capex
opportunity after years of under investment.
• Worsening consumer mix, inadequate tariff hikes: We note the worsening
consumer mix of DISCOMs as the share of low realisation domestic/agri.
consumption rose 675bps/166bps respectively b/w FY12-21, primarily at the
cost of high tariff industrial & commercial consumption. This translates into a)
drag on avg. tariff (barely 3.5% CAGR b/w FY12-21), and b) rising dependence
on state govt. subsidies (from 12% of operating revs. in FY12 to 25% in FY21).
• Rising share of subsidy, delay in its release by states concerning:
Increased subsidy dependence in turn has meaningfully worsened DISCOMs’
balance sheet (Rs5.9tn debt burden) given the delay in recognition & release
of these subsidies by state govts leads to working capital cycle extension (the
pain of which is passed on to the entire value chain). Corresponding to this, the
share of debt owed by DISCOMs to state govts has sharply declined from 38%
in FY17 (post UDAY debt takeover) to less than 12% in FY21 – highlighting the
inability of states to continue funding DISCOM losses.
• Alarming balance sheet situation reflected in cost of debt premium:
Despite being sovereign backed entities, state DISCOMs’ paid 200-350bps
higher finance cost vs. their pvt counterparts, indicative of their inferior balance
sheet position. Total DISCOM debt has risen from Rs4.2tn in FY16 to Rs5.9tn
in FY21. We est. savings worth Rs145bn (Rs0.14/kWhr power sold) if state
DISCOMs were able to borrow at rates similar to pvt. players – helping reduce
upto 20% of overall losses (on subsidy receipt basis).
• Delayed supplier payments masking worsening receivable situation:
Apoorva Bahadur
Counterintuitively, state DISCOMs report a negative working capital position
+91 900 469 8700
albeit by delaying payments to suppliers (139 payable days in FY21 vs. 121
apoorva.bahadur@investec.co.in
receivable days). The brunt of this forced loss funding is majorly borne by state Investec Capital Services (India) Pvt. Ltd
GENCOs, which worryingly receive payment for the power supplied only once
annually (347 receivable days reported in FY21). 15% CAGR rise in regulatory
assets over FY16-21 is further reflective of the ‘kicking the can down the road’ Aditya Bhartia
mind-set of DISCOMs & state govts. Now worth Rs755bn, just clearing these +91 (22) 6849 7417
will entail 14%+ tariff hike (of Rs0.75/kWhr). aditya.bhartia@investec.co.in
Investec Capital Services (India) Pvt. Ltd
• Private DISCOMs’ comprehensive outperformance strengthens the case
for privatisation of power distribution: On path of presenting itself as a fait
accompli, we believe deteriorating fiscal condition along with political
polarisation will leave state govts’ with few options than privatising DISCOMs.
Even allowing multiple licensees (as proposed in the Electricity Amendment
Act) will be of little help, especially in driving investments in the ‘wires’ business.
One-time balance sheet clean up along with complete privatisation is required
to break the vicious cycle of losses & under-investment in the sector. Whenever
governments decide to bite this bullet, we expect CESC, Tata Power, Torrent
Power & Adani Transmission to be the key beneficiaries.
Readers in all geographies please refer to important disclosures and disclaimers starting on page 26. In the United Kingdom this
document is a MARKETING COMMUNICATION. It has not been prepared in accordance with the rules in the FCA Conduct of
Business Sourcebook designed to promote the independence of research and is also not subject to any prohibition on dealing
ahead of the dissemination of research. Full analyst details are shown on the back page.
This publication and its contents are the property of Investec and are intended solely for the use of Mehul Soni.
Focus charts
Figure 1: Financial mismanagement much larger culprit in state DISCOMs’ woes…
FY21 DISCOM
loss split
Loss due to
operational under-
performance
35%
Loss due to financial

mismanagement
65%
Source: PFC, Investec Securities estimates; *loss on subsidy received basis
Figure 2: … which means operational improvements alone will be inadequate to stem the rot
800
(Rs bn)
700
Operational loss 108
600
reduction
500 potential
250
400
709
300 145
200
100 206
0
Subsidy under- Excess interest Excess power ACS-ARR Gap Loss - subsidy
receipt cost - CoD above cost - AT&C loss (bal. fig.) received basis
7.5% above 15%
Source: PFC, Investec Securities estimates
Figure 3: Avg. tariff CAGR b/w FY12-21 barely 3.5%

8.0 (FY12-21 Avg, Realisation CAGR %)
7.0
6.0 6.7
5.0
4.9 5.1
4.0
3.0 3.5
2.0
1.0
0.0 0.6
-1.0 (1.5)
-2.0
Domestic Commercial Agri Industrial Misc. Overall
Page 2 | 02 November 2022

Figure 4: Subsidies contributed 1/4th of DISCOMs’ revenue in FY21

30
Subsidy booked as % of revenue from power sale
25
25
23 23
20 21 21
19
15
12 13 13
10 11
0
o
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Figure 5: Overall DISCOM debt almost Rs6tn

6,000 5,862
(Rs bn)
Overall debt
5,750
5,500
5,250 5,142
5,000 4,785
4,750 4,545
4,500
4,211 4,171
4,250
4,000
3,750
3,500
FY16 FY17 FY18 FY19 FY20 FY21
Figure 6: Despite being ‘sovereign equivalent’, state DISCOMs’ are paying 200-350bps higher finance cost than their private counterparts
14.0 (Finance cost - %)
All India Tata Power - Delhi Torrent Power CESC - Kolkata
12.0 11.5
11.2
10.7
10.2 10.1
10.0 9.4
8.7 9.0
8.5 8.2
7.6 7.7 7.9 7.6 7.9
8.0 7.0 7.1 7.0
6.7 6.4
6.0
4.0
2.0
-
FY17 FY18 FY19 FY20 FY21
Source: PFC, Company data, Investec Securities estimates

Figure 7: Overall DISCOM working capital cycle negative as they squeeze operational creditors
(139 days in FY21), helping offset high receivable days (121 days in FY21)
160 (days) -
Receivables days Payable days WC cycle - RHS
140 (5)
(4)
120 (10)
100 (15)
80 (17) (20)
60 (25)
40 (27) (30)
(31) (30)
20 (35)
(34)
0 (40)
Figure 8: State GENCOs funding DISCOMs by stealth

400
(days) State Gencos - Receivables 347
350
300 271
247
250 230 224
200
150
100
50
0
Figure 9: Regulatory assets have increased at 15% CAGR b/w FY16-21 from Rs380bn
(Rs0.48/kWhr sold) to Rs755bn (Rs0.75/kWhr sold)
800 (Rs bn) (Rs) 0.8
Regulatory assets Regulatory assets per kWhr sold - RHS
700 0.75 0.7
600 0.65 0.6
500 0.5
0.52 0.53
400 0.4
0.48 0.49
300 0.3
200 0.2
100 0.1
380 407 464 503 659 755
0 0.0

Figure 10: AT&C loss trend – All India AT&C losses materially higher than those of private DISCOMs
25.0 23.5 All India Tata Power - Delhi Torrent Power - Ahmedabad Torrent Power - Surat CESC - Kolkata CESC - Noida
22.4 22.0 22.3
20.9
20.0
15.0
11.1
9.7
10.0 8.6 8.4 9.0 8.5 8.9
8.0 8.0 8.2 7.9 8.0 7.9 8.4 7.9
6.8 6.3
5.6 6.0
5.0
5.0 3.9 3.6 3.4 3.4 3.5
-
(Loss - %) FY17 FY18 FY19 FY20 FY21
Figure 11: Significantly lower state DISCOM avg. realization vs. pvt. DISCOMs a function of worse consumer profile, high losses
10.0 (Avg. realisation - Rs/kWhr)
All India Tata Power - Delhi Torrent Power CESC - Kolkata CESC - Noida
9.0 8.4 8.6 8.3
8.0 8.1 8.1 8.2 8.3
8.0
8.0 7.3 7.2 7.3 7.3 7.3 7.4 7.4
6.8 7.0 6.8
7.0 6.6
6.0 5.3
4.9 5.0 5.1
4.8
5.0
4.0
3.0
2.0
1.0
-
Figure 12: Capex as % of total NFA dipped from 13% in FY19 to 8% in FY21 due to Covid lock-
downs & worsening DISCOM financials
800 (Rs bn) Capex Capex as % of total NFA 14.0
700 13.0
13.2 13.1
12.0
600
11.0
500 11.3
10.0
400
9.0
300
8.0
200 8.1
7.0
7.5
7.1
100 6.0
540 313 356 719 717 523
0 5.0

Worsening customer mix, inadequate

tariff hikes affecting DISCOM
financials…

Figure 13: Share of domestic power consumption in overall volumes Figure 14: …to 32% in FY21, primarily at the cost of industrial
has risen from 25% in FY12… consumption, which has fallen by 600bps over the same period
Misc. Domestic
Misc.
13% 25% Domestic
11%
32%
FY12
Industrial
25%
Industrial
31% Commercial
9% FY21
Commercial
Agri Agri 8%
22% 24%
Source: PFC, Investec Securities estimates Source: PFC, Investec Securities estimates
Figure 15: Share of low realization domestic segment in DISCOMs’ Figure 16: …to 29% in FY21 as contribution of high value industrial
revenue contribution has increased from 20% in FY12… customers decline from 44% to 40% over the same period
Misc. Domestic Misc.

20% Domestic
16% 11%
29%
FY12 FY21
Commercial
13%
Industrial
40%
Industrial Agri Agri Commercial

44% 7% 5% 15%
Figure 17: Decline in avg. agri. tariffs b/w FY12-21 dragging overall realization CAGR
B/w FY12-21,
overall avg. 8.0 (FY12-21 Avg, Realisation CAGR %)
realisations 7.0
grew at 3.5% 6.7
6.0
CAGR, with
Commercial 5.0
segment’s 4.9 5.1
4.0
realization
witnessing 3.0 3.5
highest CAGR 2.0
while Agri
1.0
sector’s
realisations 0.0 0.6
declined. -1.0 (1.5)
-2.0
Domestic Commercial Agri Industrial Misc. Overall

Figure 18: Overall avg. realization trend Figure 19: Domestic avg. realization trend
6.0 (Rs/kWhr) Overall 6.0 (Rs/kWhr)
5.1 5.3
4.9 4.9 4.9 5.0 Domestic 4.8
4.7 4.8
5.0 4.4 5.0 4.4 4.5
4.1 4.2 4.3
3.9 4.0
3.8
4.0 4.0 3.5
3.2
3.0 3.0
2.0 2.0
1.0 1.0
0.0 0.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Figure 20: Industrial avg. realization trend Figure 21: Commerical avg. realization trend
10.0 12.0
(Rs/kWhr) Industrial 8.4 (Rs/kWhr) Commercial 10.0
8.0 7.4 7.5 7.4 7.4 10.0 9.1
7.0 8.6 8.4
7.7 8.1 8.1
6.2 6.4 7.3 7.6
6.0 8.0
6.0 5.4
5.5
6.0
4.0
4.0
2.0 2.0
0.0 0.0
Figure 22: Agricultural avg. realization trend Figure 23: Miscellaneous segment avg. realization trend
2.0 (Rs/kWhr) 1.9 7.0 6.5 6.4
1.7 Agri (Rs/kWhr) Misc.
1.7
6.0 5.4 5.5 5.6
1.5 5.3 5.2
4.9 4.9 5.0
1.5 5.0
1.3
1.1
1.0 4.0
1.0 0.8 0.8 0.7 3.0
0.5 2.0
1.0
0.0 0.0

…with its impact compounded by

insufficient AT&C loss reduction &
rising power purchase cost

AT&C losses Figure 24: AT&C losses trend

have declined 27 (%)
from 27% to AT&C loss
22% over 26 27
FY12-22 but
still above 26
25 25
UDAY target
of 15%. 24
24
23 24
22 23
22 22
22
21
21
20
Figure 25: Component-wise break up of all India DISCOM costs

Share of
100%
power
purchase cost 90%
in overall
DISCOM cost 80%
structure is 70%
on the rise
despite the 60%
deflationary
50%
impact of
rising RE 40%
share.
30%
20%
10%
0%
Power cost Employee cost Other expenses Depreciation Finance cost
EBITDA per Figure 26: EBITDA per unit trend

unit has 0.6 (Rs/kWhr) 0.5
improved EBITDA per unit 0.5
since UDAY 0.4 0.4
0.3
implementatio 0.2
n on the back 0.2
of rise in
revenue -
grants & (0.0) (0.0)
subsidy (0.2)
booking.
(0.4)
(0.4)
(0.6) (0.5)
(0.7)
(0.8)

Figure 27: All India DISCOMs’ power purchase cost trend Figure 28: All India DISCOMs’ employee cost trend
7.0 0.7
(Rs/kWhr) Power cost (Rs/kWhr) Employee cost
6.0 0.6 0.7
0.6
5.8 5.8 5.8 0.6
5.0 0.5 0.5 0.6
5.2 5.2 5.3 0.5 0.5
4.0 4.7 0.4 0.5 0.5
4.4 4.5 0.4
4.2
3.0 0.3
2.0 0.2
1.0 0.1
0.0 0.0
Figure 29: All India DISCOMs’ depreciation trend Figure 30: All India DISCOMs’ finance cost trend
0.4 0.7
(Rs/kWhr) (Rs/kWhr)
Depreciation Finance cost
0.3 0.6
0.3 0.6
0.3 0.5 0.6 0.6
0.3 0.5 0.5
0.5 0.5 0.5
0.2 0.2 0.2 0.2 0.4
0.2 0.4
0.2 0.3 0.3
0.1 0.1 0.1
0.1 0.1 0.2
0.1 0.1
0.0 0.0

Rising state subsidy support masking

the extent of the rot; delay in its
release indicative of the
unsustainability of status-quo

Figure 31: Subsidy booking has risen at 18% CAGR b/w FY12-21….
Rise in 1,400
subsidy (Rs bn) Subsidy booked Subsidy received
booking has 1,200
coincided
with decline 1,000
in agri.
realisations 800
along with
lower share 600
of industrial
& 400
commercial
power sale. 200
0
Current Figure 32: …accounting for a quarter of all India DISCOMs’ revenue from power sale
share of 30
subsidy in Subsidy booked as % of revenue from power sale
DISCOMs’
25
overall 25
revenue is so 23 23
high that 20 21 21
their financial 19
condition will 15
progressively
deteriorate 12 13 13
10 11
unless a
timely /
advance 5
payment
release 0
mechanism FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
is put in Source: PFC, Investec Securities estimates
place.
Figure 33: However, subsidy receipt has failed to keep pace with booking as state govts. delay
fund release. Gap b/w subsidy booking & receipt crossed Rs200bn in FY21
In addition to 18 250
the total o/s (%) (Rs bn)
subsidy of 16
Rs763bn, 14 15 200
govt. depts. 14
owe 12
Rs653bn to 150
10
DISCOMs as 11
on Jun’22. 8
100
6
6 5
4 50
4
4
2
2 2 1
0 0
Subsidy gap as % of subsidy booking Subsidy gap - RHS

Ex-subsidy, DISCOM losses at Rs1.8tn;

cash losses Rs500bn+

Figure 34: DISCOMs losses (ex-subsidy) crossed Rs1.8tn in FY21…

(750)
(950)
(1,017) (1,022)
(1,150) (1,075) (1,059)
(1,178)
(1,350) (1,228)
(1,397)
(1,550)
(1,516)
(1,599)
(1,750)
(Rs bn)
(1,950) (1,827)
Loss (ex-subsidy)
Figure 35:…with Rs500bn+ cash losses, significantly increasing DISCOMs’ loss funding
requirement
-
(100)
(200)
(203)
(300) (242)
(290)
(400)
(500) (450) (433)

(513)
(600) (545)
(601)
(700) (666) (633)
(Rs bn) Cash profit
Figure 36: Worsening trend of ‘Realisation – Avg Power Purchase Cost’ & Cash proper per unit
– highlighting the requirement of regular & adequate tariff hikes
0.4
(Rs/kWhr) Realisation - APPC Gap Cash profit
0.2
(0.2)
(0.4)
(0.6)
(0.8)
(1.0)
(1.2)

Worsening balance sheet artificially

propped up by delaying payables

Figure 37: Overall DISCOM debt almost Rs6tn at the end of FY21…
6,000 5,862
(Rs bn)
Overall debt
5,750
5,500
5,250 5,142
5,000 4,785
4,750 4,545
4,500
4,211 4,171
4,250
4,000
3,750
3,500
Figure 38:…with debt funding from state govt. being replaced… Figure 39: …with non-state govt. sources
40 38.0 100
Non-state govt. debt as % 85.5 88.4
35 of total borrowing 80.9
28.6 Borrowing from state govt 80 74.7 71.4
30 as % of overall debt
25.3 62.0
25 60
19.1
20
14.5
15 11.6 40
10
20
5
0 0
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Figure 40: Debt to EBITDA of 16.5x concerning

30
(x) Debt to EBITDA
25
20
15
10
5
17.7 11.3 23.9 10.7 16.5
0
(369.1)
-5
-10
-15
-20
Source: Investec Securities estimates

Figure 41: Overall DISCOM working capital cycle negative as they squeeze operational creditors
Against (139 days in FY21), helping offset high receivable days (121 days in FY21)
conventional 160 (days) -
wisdom, state Receivables days Payable days WC cycle - RHS
DISCOMs 140 (5)
typically run a (4)
negative 120 (10)
working
capital cycle, 100 (15)
squeezing
suppliers 80 (17) (20)
(esp. state
GENCOs). 60 (25)
40 (27) (30)
(31) (30)
20 (35)
(34)
0 (40)
Figure 42: Regulatory assets have increased at 15% CAGR b/w FY16-21 from Rs380bn
Rising (Rs0.48/kWhr sold) to Rs755bn (Rs0.75/kWhr sold)
regulatory 800 0.8
(Rs bn) (Rs)
assets Regulatory assets Regulatory assets per kWhr sold - RHS
indicative of 700 0.7
0.75
the ‘regulatory
kicking the 600 0.65 0.6
can…’ as
states delay 500 0.5
timely & 0.52 0.53
0.48 0.49
adequate tariff 400 0.4
hikes; this
also results in 300 0.3
receivable
under- 200 0.2
reporting.
100 0.1
380 407 464 503 659 755
0 0.0
Figure 43: Capex as % of total NFA dipped from 13% in FY19 to 8% in FY21 due to Covid lock-
Worsening downs & worsening DISCOM financials
financial
800 (Rs bn) Capex Capex as % of total NFA 14.0
condition
constraints 700 13.0
DISCOMs’ 13.2 13.1
ability to fund 12.0
600
capex,
resulting in 11.0
500 11.3
under 10.0
investment in 400
infrastructure 9.0
– which in 300
turn leads to 8.0
higher AT&C 200 8.1
7.0
losses. 7.5
7.1
100 6.0
540 313 356 719 717 523
0 5.0

Head-to-head comparison strengthens

case for privatisation of power
distribution

Figure 44: Power sale volume growth (YoY) trend – State DISCOMs have mostly outperformed private ones as electricity access & penetration
improved across the country
25.0
(YoY power sale
20.0 growth - %)
15.0
10.0
5.0
-
(5.0)
(10.0)
(15.0)
(20.0)
(25.0)
All India TPWR Delhi Torrent Power - Ahd Torrent Power - Surat CESC - Kolkata CESC - Noida
Figure 45: AT&C loss trend – All India AT&C losses materially higher than those of private DISCOMs
25.0 23.5 All India Tata Power - Delhi Torrent Power - Ahmedabad Torrent Power - Surat CESC - Kolkata CESC - Noida
22.4 22.0 22.3
20.9
20.0
15.0
11.1
9.7
10.0 8.6 8.4 9.0 8.5 8.9
8.0 8.0 8.2 7.9 8.0 7.9 8.4 7.9
6.8 6.3
5.6 6.0
5.0
5.0 3.9 3.6 3.4 3.4 3.5
-
(Loss - %) FY17 FY18 FY19 FY20 FY21
Figure 46: Significantly lower state DISCOM avg. realization vs. that of pvt. DISCOMs a function of worse consumer profile, high losses
10.0 (Avg. realisation - Rs/kWhr)
9.0 8.4 8.6 8.3
8.0 8.1 8.1 8.2 8.3
8.0
8.0 7.3 7.2 7.3 7.3 7.3 7.4 7.4
6.8 7.0 6.8
7.0 6.6
6.0 5.3
4.9 5.0 5.1
4.8
5.0
4.0
3.0
2.0
1.0
-

Figure 47: Lower avg. power purchase cost of private DISCOMs highlights their efficient procurement strategies
7.0 (Power purchase cost - Rs/kWhr) 6.4
6.1
6.0 5.8 5.8 5.7 5.8 5.7 5.8 5.9
5.2 5.1 5.3 5.4 5.2 5.4 5.3 5.4 5.3
5.0 4.6 4.6 4.6 4.6 4.6 4.7 4.7 4.7 4.7 4.7 4.7
4.3
4.0
3.0
2.0
1.0
-
All India Tata Power - Delhi Torrent Power - Ahmedabad Torrent Power - Surat CESC - Kolkata CESC - Noida
Figure 48: Counter-intuitively, state DISCOMs’ employee cost per unit is competitive with that of several pvt. ones…
1.2 (Employee cost - Rs/kWhr)
1.0
1.0 0.9
0.9
0.8 0.8
0.8
0.7 0.7
0.6
0.6 0.5 0.6
0.6 0.5 0.5 0.6
0.5
0.4 0.3
0.3 0.3 0.3 0.3
0.2 0.2 0.2
0.2
0.2 0.1
-
Figure 49: …so are other expenses

0.9 (Other cost - Rs/kWhr) 0.8
0.8 0.8
0.8 0.8 0.8
0.7 0.7
0.6
0.6 0.5 0.5
0.5 0.5
0.5 0.5 0.5
0.4
0.4
0.4 0.4 0.4 0.4 0.4 0.4
0.3 0.3
0.3 0.3
0.3
0.3
0.2
0.1
-

Figure 50: Despite being ‘sovereign equivalent’, state DISCOMs are paying 200-350bps higher finance cost than their private counterparts
14.0 (Finance cost - %)
All India Tata Power - Delhi Torrent Power CESC - Kolkata
12.0 11.5
11.2
10.7
10.2 10.1
10.0 9.4
8.7 9.0
8.5 8.2
7.6 7.7 7.9 7.6 7.9
8.0 7.0 7.1 7.0
6.7 6.4
6.0
4.0
2.0
-
Figure 51: Weak capex spend by state DISCOMs is both cause & effect of their precarious financial condition
25.0 (Capex as % of NFA)
All India Tata Power - Delhi Torrent Power - Ahmedabad Torrent Power - Surat CESC - Kolkata CESC - Noida
19.6
20.0 18.1 17.9 17.3
15.1 15.0
15.0 13.1 13.5
11.9 12.4 12.3 12.5 11.9
11.8 11.3
9.9
10.0 8.9
7.5 8.1 8.7 7.7
7.1 6.6
5.9 5.3
4.1 4.2 4.7
5.0 3.3
2.0
-
Figure 52: Receivable days comparison – state DISCOMs significantly worse off than private operators…
140
(Receivable days)
121
120
108
99 99 101
100 93
80 74 74 74
60 51 49
47 49 48 46
40 33
28 28 29 30
24 21
19 18 19
20
-

Figure 53: …which translates into substantial delays by them in clearing payables – thereby affecting the entire power value chain
140 (Payable days) All India Tata Power - Delhi Torrent Power CESC - Kolkata CESC - Noida 130
122 125
117
120
107
96
100
80
68
63 63 60 62 62
60 52
45
40 32 31 31 30 34
29 28 26
24 25
20
20
-
Figure 54: Negative working capital cycle of state DISCOMs = forced funding from GENCOs…
80 (Working capital cycle - days) 71
66
59
60 48 49
42 42
32 35 34
40
20
-
(4) (4)
(20) (13)
(17) (21)
(40) (27) (31) (30) (30) (27)
(34) (34)
(43)
(60) (49)
(80)
(75)
(100)
Figure 55: …as evident by the rising receivables of State Gencos

400
(days) State Gencos - Receivables 347
350
300 271
247
250 230 224
200
150
100
50
0

Weak financials resulting in under-

investments – presenting a low
hanging opportunity

Figure 56: Capex incurred per customer comparison

5,000 4,526 Capex per customer (Rs)
Private 4,500
3,821 3,921
DISCOMs’ 4,000 3,491
having lower 3,500
capex per 3,000 2,659 2,478
customer is a 2,292 2,279 2,294
2,500
function of 1,672 1,819 1,991
2,000
them serving 1,500 1,032
densely 1,000
populated 500
urban centres 0
Maharashtra
TPW - Surat
Rajasthan
TPW - Ahd
TPWR - Mumbai
All India
TPWR - Delhi
Gujarat
UP
TN
TPWR - Odisha
AEML
CESC - Kolkata
On a side
note, Torrent
Power’s Source: PFC, Company data, Investec Securities estimates
Ahmedabad &
Surat
DISCOMs Figure 57: Capex per MW of peak demand comparison
incurring 2x 7 Capex per MW peak demand (Rs mn) 6.4
capex per
customer than 6
5.0
that of entire 5 4.4
state of 3.9
4 3.4 3.5
Gujarat is
interesting 3 2.4 2.4 2.6
2.3 2.1
1.9 1.9
2
1
0
Maharashtra
TPW - Surat
All India
Rajasthan
TPW - Ahd
TPWR - Mumbai
TPWR - Delhi
Gujarat
UP
TN
AEML
CESC - Kolkata
TPWR - Odisha
Figure 58: Capex per mkWhr of demand comparison

1.4 Capex per mkWhr base demand (Rs mn)
1.1
1.2
1.0
1.0 0.9
0.8 0.7 0.7
0.6 0.5 0.5 0.5
0.6
0.4 0.4
0.4 0.3 0.3
0.2
0.0
Maharashtra
TPW - Surat
All India
Rajasthan
TPW - Ahd
TPWR - Mumbai
TPWR - Delhi
UP
TN
Gujarat
AEML
CESC - Kolkata
TPWR - Odisha

Disclosures
Third party research disclosures Research recommendations framework

This report has been produced by a non-member affiliate of Investec Securities bases its investment ratings on a stock’s expected total return (ETR) over the next 12 months (with total return
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12m performance Count % of total Count % of total
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Company disclosures
CESC Ltd Power Grid Corporation of Torrent Power Ltd

India
NTPC Ltd Tata Power Co. Ltd
Key:  Investec has received compensation from the company for investment banking and/or brokerage services within the past
12 months, Investec expects to receive or intends to seek compensation from the company for investment banking services,
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Recommendation history (for the last 3 years to previous day’s close)
For recommendation history on all covered stocks including any company mentioned herein, please visit: http://researchpdf.investec.co.uk/Documents/WDisc.pdf
Tata Power Co. Ltd (TTPW.NS) – Rating Plotter as at 02 Nov 2022
250
200
150
100
50
Price Target
Buy Hold Sell Not Rated
Source: Investec Securities / FactSet
Power Grid Corporation of India (PGRD.NS) – Rating Plotter as at 02 Nov 2022
240
220
200
180
160
140
120
100
80
60
40
20
0
Price Target
CESC Ltd (CESC.NS) – Rating Plotter as at 02 Nov 2022
110
100
90
80
70
60
50
40
30
20
10
0
Price Target

NTPC Ltd (NTPC.NS) – Rating Plotter as at 02 Nov 2022
200
180
160
140
120
100
80
60
40
20
0
Price Target
Torrent Power Ltd (TOPO.NS) – Rating Plotter as at 02 Nov 2022
550
500
450
400
350
300
250
200
150
100
50
0
Price Target

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India Power Utilities

CESC Ltd Buy INR115

Loss due to financial

Source: PFC, Investec Securities estimates; *loss on subsidy received basis

Source: PFC, Investec Securities estimates

Figure 3: Avg. tariff CAGR b/w FY12-21 barely 3.5%

Page 2 | 02 November 2022

Figure 4: Subsidies contributed 1/4th of DISCOMs’ revenue in FY21

Figure 5: Overall DISCOM debt almost Rs6tn

Page 3 | 02 November 2022

Figure 8: State GENCOs funding DISCOMs by stealth

600 0.65 0.6

Page 4 | 02 November 2022

Page 5 | 02 November 2022

Worsening customer mix, inadequate

Page 6 | 02 November 2022

Misc. Domestic Misc.

Industrial Agri Agri Commercial

Page 7 | 02 November 2022

Page 8 | 02 November 2022

…with its impact compounded by

Page 9 | 02 November 2022

AT&C losses Figure 24: AT&C losses trend

Figure 25: Component-wise break up of all India DISCOM costs

EBITDA per Figure 26: EBITDA per unit trend

Page 10 | 02 November 2022

Page 11 | 02 November 2022

Rising state subsidy support masking

Page 12 | 02 November 2022

Page 13 | 02 November 2022

Ex-subsidy, DISCOM losses at Rs1.8tn;

Page 14 | 02 November 2022

Figure 34: DISCOMs losses (ex-subsidy) crossed Rs1.8tn in FY21…

(500) (450) (433)

Page 15 | 02 November 2022

Worsening balance sheet artificially

Page 16 | 02 November 2022

Figure 40: Debt to EBITDA of 16.5x concerning

Page 17 | 02 November 2022

Page 18 | 02 November 2022

Head-to-head comparison strengthens

Page 19 | 02 November 2022

Page 20 | 02 November 2022

Figure 49: …so are other expenses

Page 21 | 02 November 2022

Page 22 | 02 November 2022

Figure 55: …as evident by the rising receivables of State Gencos

Page 23 | 02 November 2022

Weak financials resulting in under-

Page 24 | 02 November 2022

Figure 56: Capex incurred per customer comparison

Source: PFC, Company data, Investec Securities estimates

Figure 58: Capex per mkWhr of demand comparison

Source: PFC, Company data, Investec Securities estimates

Page 25 | 02 November 2022

Third party research disclosures Research recommendations framework

Page 26 | 02 November 2022

CESC Ltd Power Grid Corporation of Torrent Power Ltd

NTPC Ltd Tata Power Co. Ltd

Page 27 | 02 November 2022

Recommendation history (for the last 3 years to previous day’s close)