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Power companies' scrips set to gain from hike in bank rate
Sunita Nagpal
New Delhi, Jan 20: The hike in bank rate is a blessing in disguise for power stocks. Although the two per cent hike in bank rate has come as a shock to the corporate sector, power companies are an exception to this rule.Power companies stand to gain as the licensees are allowed to earn five per cent rate of return over the bank rate. With the bank rates now increased from 9 to 11 per cent, power companies will be able to earn 16 per cent for 1998-99 as against 14 per cent as expected earlier. However, for fiscal 1998, there will no change as return is computed on the basis of bank rate prevailing on April 1 of the financial year. With the 2 per cent cut in bank rate earlier, there were fears of slowdown in power sector. According to Ajay Jinda, analyst with Caspian Securities Limited, ``A two per cent hike in bank rate should lead to 10-12 per cent jump in the scrip prices. However, scrips of major players in the power sector have already moved up 6-7 per cent. Hike in bank rate will lead to improvement
in the bottomline of power companies from next fiscal onwards.'' BSES scrip has moved up from Rs 157 to Rs 174.5 in the last two trading sessions, Tata-Hydro Electric from Rs 73 to Rs 76.25, Tata Power moved from Rs 110 to Rs 114.25, Andhra Valley from Rs 74.75 to Rs 77.75. Although some marketmen feel that there is no further scope for rise in the scrips, but others are expecting further hike in bank rate on 100 basis points which means further 10 per cent jump in scrip prices. Another factor in favour of the power sector that it is defensive sector especially considering the fact Indian market expected to be uncertain for most part of the year. According an analyst with leading FII, ``With the hike in bank rate the power companies will be in a better position to hike tariffs, basically it gives them more flexibility.'' However, another analyst feels, ``Although the companies will have more scope for hiking tariffs, but due to unfavourable socio-political and elections round the corner they might not
be able to do so.'' However, the sector suffers from poor supply of paper, there are only two major players in the sector -- BSES and Tata Electric companies -- while others like CESC and AEC are smaller players. Analysts expect BSES to outperform the market, while TEC will be neutral. Most of the BSES's growth will be capex driven, especially in the distribution network, which includes streamlining of the operations and construction of a 500 mw power plant at Palghat. In the case of Tata Electric companies, most of the projects have been put on hold as the clearance from state governments is still awaited. However, for fiscal 1998, the company is expected to report 16-17 per cent growth as it did not report good results for 1996-97 and the rates were revised very late in fiscal 1997. Full benefit of which is likely to accrue in the current fiscal.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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