The balance sheets of most companies are robust enough to withstand additional working capital, the brokerage house said. Edelweiss said that due to delay in payments by distribution firms, generation companies would have to borrow uo to 120 bln rupees more, which would increase the interest payments and hit profits. However, as the interest on additional working capital would be reimbursed by distribution companies post the moratorium, the net impact on profits of power generation companies would be neutral.
On Saturday, the government asked power generation companies to not cut power supply in case of payment delays due to the ongoing nationwide lockdown. It has also announced a 50% cut in payment security for future power purchases for distribution companies and waived the penalty for late payments. On concerns that the moratorium by the government may turn into a waiver, the brokerage firm said the possibility of a waiver was dim, as this would have a far-reaching impact on all stakeholders.
Distribution companies, however, will see their expenses ballooning post the moratorium and their debt may rise by 250 bln rupees, as per the report. The brokerage firm said NTPC Ltd was its top pick among power generation companies, due to its strong balance sheet and a regulated business model which provides a safety net and insulates against demand risk. At 1315 IST, shares of NTPC, Power Grid Corp, NHPC, SJVN, PTC India, Power Finance Corp, REC, Tata Power, Adani Power, Adani Transmission, Adani Green, and CESC were up 1.2-7.2% on the National Stock Exchange.