Fitch Ratings forecasts improved trajectory for rated Indian power utilities

New Delhi [India], November 10 : Fitch Ratings anticipates sustained improvements in trade receivables and capex intensity to serve as primary credit drivers for rated Indian power utilities in the near-to-medium term.
The trend of betterment in receivables witnessed over the past two years is expected to persist in the immediate future. However, the long-term sustained enhancement hinges on the targeted execution of structural reforms aimed at bolstering the financial robustness of distribution companies (discoms).
Reforms must concentrate on timely recovery of power purchasing costs via subsidies from state governments, coupled with operational efficiency enhancements within discoms.
Recent advancements under discom reforms, such as the enactment of late payment surcharge (LPS) rules and an overhauled distribution sector scheme, have shown promising beginnings. However, the uniform nationwide implementation of these reforms poses potential risks, particularly given the political sensitivity surrounding electricity tariffs and subsidies.
The capex intensity, calculated as capex to revenue, for rated Indian power utilities is poised to remain at a heightened level.
Forecasts indicate an average of about 25 per cent for FY24 and FY25, a marked increase from the 20 per cent recorded in FY23.
This spike will be largely attributed to amplified investments in renewable power generation. The anticipated boost in cash collections should underpin this accelerated pace of capital expenditure, aiding most utilities in maintaining a robust financial stance, despite rising interest rates.
Fitch underscores the necessity of sustained enhancements in the power sector's financial landscape, specifically the discoms' operational efficiency and structural reforms, to fortify the overall credit profiles of rated Indian power utilities.