Uptick in electricity generation not sustainable

by Yash Shah

Growth in gross generation of electricity by utilities slowed down to 0.3 per cent during April-January 2019-20, compared to 4.2 per cent growth recorded in the corresponding year-ago period. Growth in power generation reached an all-time low in October 2019, contracting by 12.9 per cent on a year-on-year (y-o-y) basis. October 2019 also saw the worst month-on-month (m-o-m) fall in 17 years.

After bottoming in October, generation of electricity has been showing an uptick in activity since November 2019. The intensity of y-o-y contraction reduced in November and December. More importantly, m-o-m growth in November and December 2019 was the highest when compared to the m-o-m growth rates in these months in the last six years. Further, power generation came out of the red to record two per cent y-o-y growth in January 2020. Electricity generation in January improved over that in December 2019.

Evidently, electricity generation is coming off its deep decline of October 2019 which was caused by severe coal shortages among other reasons.

India’s manufacturing sector is majorly dependent on electricity as fuel. Growth in electricity generation is thus often expected to be a precursor to reveal trends in manufacturing activity. But, growth in manufacturing sector continues to slow down and shows no signs of revival in activity in recent months.

Manufacturing IIP recorded three months of continuous decline till October 2019. It recorded y-o-y growth in November 2019, but again contracted by 1.2 per cent in December 2019. Production of fertilisers, refinery products, steel and cement slowed down in January 2020, as per index of core industries (ICI). These four industries form 28 per cent of manufacturing IIP.

A continued slowdown in industrial activity does not explain the recent uptick in power generation. Recent growth in electricity generation seems to have thus occurred due to increased demand from the agriculture sector and restoration of coal supply after heavy rains.

Around half of electricity from utilities is consumed by industrial & commercial sector and half is majorly consumed by domestic and agriculture sectors. Agriculture sector demands electricity for the purpose of using pumps for irrigation. Approximately half of gross cropped area is irrigated in India. Rabi acreage in the ongoing season recorded 9.5 per cent y-o-y growth till January 31, 2020. This could have led to increased demand for electricity. Also, one of the goals of Ministry of Power is to supply round the clock electricity to all households and thus there is an ever increasing need to meet domestic demand.

On the supply side, coal-based thermal electricity accounts for more than three-fourth of gross generation from utilities. Prolonged and heavy south west monsoon had disrupted the supply of coal to thermal power stations, especially in September and October 2019. After the retreat of southwest monsoon, coal supply was restored resolving the supply-side constraints faced by the power sector.

Moving forward, increase in demand for power from industrial & commercial sector looks bleak. In the short run at least, increasing spread of COVID-19 is expected to negatively impact international trade, domestic production of pharmaceuticals, textiles and retail trade. The extent of impact of COVID-19 is yet to be ascertained but is expected to have a domino effect on many industries. Moreover, rabi sowing is nearing its end and demand for electricity from the agriculture sector is also expected to be subdued in the near future.

Therefore the growth in electricity generation seen in recent months is expected to be short lived and, not sustainable.

CMIE STATISTICS
Unemployment Rate
Per cent
10.9 +0.5
Consumer Sentiments Index
Base September-December 2015
84.8 -2.4
Consumer Expectations Index
Base September-December 2015
85.6 -2.4
Current Economic Conditions Index
Base September-December 2015
86.9 -2.5
Quarterly CapEx Aggregates
(Rs.trillion) Jun 19 Sep 19 Dec 19 Mar 20
New projects 1.09 2.05 4.95 2.92
Completed projects 0.88 0.83 1.64 0.77
Stalled projects 0.13 0.41 0.60 0.49
Revived projects 0.29 0.52 0.83 0.41
Implementation stalled projects 0.98 0.85 0.15 1.13
Updated on: 08 Apr 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Mar 19 Jun 19 Sep 19 Dec 19
All listed Companies
 Income 8.5 4.7 -2.2 -1.7
 Expenses 5.4 2.7 -3.1 -2.2
 Net profit 213.1 17.4 -2.3 -10.3
 PAT margin (%) 3.6 6.2 5.3 5.2
 Count of Cos. 4,437 4,452 4,411 4,356
Non-financial Companies
 Income 8.0 2.4 -6.4 -5.4
 Expenses 7.7 1.7 -6.7 -6.3
 Net profit 1.6 -8.5 -14.9 -13.1
 PAT margin (%) 6.2 6.3 5.8 5.8
 Net fixed assets 5.6 10.4
 Current assets 13.2 4.6
 Current liabilities 7.3 4.8
 Borrowings 12.3 8.4
 Reserves & surplus 7.2 5.9
 Count of Cos. 3,322 3,339 3,314 3,267
Numbers are net of P&E
Updated on: 08 Apr 2020 3:28PM
Annual Financials of All Companies
(% change) FY17 FY18 FY19
All Companies
 Income 6.1 8.1 14.9
 Expenses 6.1 9.5 15.3
 Net profit 26.4 -40.2 20.5
 PAT margin (%) 3.3 2.1 3.2
 Assets 8.6 10.9 9.7
 Net worth 9.6 7.6 8.7
 RONW (%) 5.8 3.5 5.3
 Count of Cos. 27,650 25,093 15,291
Non-financial Companies
 Income 5.8 8.2 15.7
 Expenses 6.0 8.4 16.1
 Net profit 23.2 -9.1 19.5
 PAT margin (%) 2.9 2.8 4.1
 Net fixed assets 9.2 6.9 5.1
 Net worth 8.9 6.1 7.7
 RONW (%) 6.2 5.7 8.2
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 2.0 2.2 2.8
 Net working capital cycle (days) 84 76 55
 Count of Cos. 22,609 20,449 11,909
Numbers are net of P&E
Updated on: 05 Apr 2020 5:13PM