ECONOMIC SLOWDOWN

Document Sample
ECONOMIC SLOWDOWN Powered By Docstoc
					     IMPACT OF
ECONOMIC SLOWDOWN
       ON
INDIAN POWER SECTOR
                 RAKESH MARKHEDKAR
                 C.E.O – PROJECTS
                 EMCO LIMITED
CONTENTS




 ECONOMIC SLOWDOWN          CORPORATE INDIA ON THE SLIDE


 POWER SECTOR SCENARIO      IMPACT ON T & D SECTOR


 EFFECT ON ELECTRICAL       RECOMMENDATIONS TO ENHANCE
 INDUSTRY                   T&D SECTOR
 CREDIT AND EQUITY MARKET
 CRISIS                     CHALLENGES FOR SURVIVAL


 WAY FORWARD                 SILVER LININGS
ECONOMIC SLOWDOWN


   2008 – UPHEAVALS IN GLOBAL ECONOMY,
  Failures of financial institutions, credit crunch,
  Government interventions.
   Has affected virtually all markets and sectors
  across the globe.
   Indian economy cannot be completely insulated
  from global slowdown.
  India Inc. posted of its worst performances in Q3
  2008-09
CORPORATE INDIA : ON THE SLIDE

                   Net sales   OPM %
                                       OPM bps    PAT growth
        Q3 FY’09    growth     Q3 FY
                                       change       yoy %
                    yoy %-      2009

   Auto              (18.3)     7.5     (471)        (52.0)

   Finance           34.4       33.6     114          41.0
   FMCG              15.9       20.9     (69)         34.9
   Healthcare         8.1       9.5     (851)       (130.2)
   IT                25.8       26.9     142          19.9
   Infra             32.4       12.9    (149)         25.8
   Power             43.2       22.9    (533)         16.4
   Metals            (5.0)      20.3    (1,468)      (45.3)
   Realty            (60.8)     50.2    (1,772)      (69.8)
   Total             10.4       17.0    (280)         (9.1)
                                                    Source: India Infoline
POWER SECTOR SCENARIO



   Power sector is one of the few industries unfazed by the
  ongoing economic meltdown.


   Both top and     bottom    lines   have   shown   significant
  improvements.


   NTPC, Power Transmission Corporation and Torrent Power
  showed strong profits and sales growth during Q3.


   NTPC registered 26.5 % increase in net profit to Rs 2,251
  crore, with sales increasing by 20.8 % to Rs 11,277 crore.
POWER SECTOR SCENARIO



   Project cost escalations are likely to come down with the
  decline in commodity prices and interest rates


   Tightness in equipment supply is no longer a major concern.


   Tightness in the availability of manpower, both skilled and un
    skilled, has eased over a past few months.


   Most banks and institutions believe that the power sector has
  one thing going for it-demand is not an issue and hence,
  financial closure will not be an issue for good projects.
IMPACT ON T & D SECTOR

  Order book position remains robust: All the major companies in
 transmission section currently holds a robust order book size of
 Rs. 123 bn.


 New order inflow to come, mainly driven by PGCIL: In Indian
 market alone, Rs 57.9 bn worth of active tenders are open in
 transmission sector. The Major portions of Rs 30.2 bn are from
 transmission tower- Rs 21.16 bn from Substation and rest are from
 the rural electrification segments.


 REC and PFC funded private line projects worth Rs 60 bn are due
 for bidding. Also Rs. 80 bn NHPCL orders are still pending. We
 don’t see any slowdown or order inflow from domestic market in
 near term future.
IMPACT ON T & D SECTOR

   SEBs and Private Transmission Companies: No clear picture: The
  order flows from SEBs are also likely to be impacted due to the
  election and funding issues. Due to the market meltdown and
  liquidity crunch in the overall economy, we believe the project
  capex are likely to be deferred and hence we do not see any near
  term order inflow from the private sector in India.


   PGCIL Investment Plan: Only positive booster – According to
  Industry boosters there is no indication of slowdown seen in order
  flowing from PGCIL. PGCIL is going to spend Rs 85 bn in FY09E
  and Rs 100 bn in FY10E.


  International Markets: Slowdown expected: African and Middle
  East markets with the cooling down of crude oil prices and bid
  dependence of these economies on commodities, the order inflow is
  likely to get impacted in near future.
IMPACT ON T & D SECTOR

   Borrowing cost and liquidity issues to impact margins:
  Transmission tower sector is a working capital intensive industry.
  Due to the current liquidity crunch, the companies may find it
  difficult to meet its working capital requirements.
   Easing of commodity prices to benefit fixed contracts.: With the
  easing of inflation, the key raw material prices like steel (-80% of
  total raw material cost) have corrected considerably from the highs
  of April 2008. This will help the EPC players in improving their
  margins as well as their working capital position.          But the
  significant benefit will be derived by the players which has more
  exposure to the fixed price contracts.
   Foreign currency fluctuation: Depreciating rupee to improve
  margins: The foreign currency having appreciated significantly in
  recent period has led to significant translation loss booked by the
  companies on the advance from customers and external
  borrowings. companies which are net exporters depreciated rupee
  will actually help the companies in improving the margins.
EFFECT ON ELECTRICAL INDUSTRY

  Though there is no slowdown or deferment in power and T&D Segment
  and the only slowdown seen in the industrial segment.
  Overall cumulative growth of electrical industry shows negative trends.
   Q3 of FY 08-09 shows 1.76% decline from 7% growth registered in
  previous quarter.
   Growth index of major electrical equipments
                                            Cummulative
                                3rd Qtr
              Product                         of 3 Qtrs
                               FY 08-09
                                              FY 08-09
     Rotating machines          -11.77             5.8
     Switchgears                 -1.92            2.39
     Cables                      -2.40            5.59
     Transformers                8.71             0.26
     Capacitor Industry         -16.50            12.19
     Energy Meters              -21.14          -10.93
     Transmission Lines          0.15             13.40
     Quarterly growth Index      -1.76            4.93
EFFECT ON ELECTRICAL INDUSTRY


   Positive growth – HT motors, power transformers, HT circuit breakers,
  power cables, conductors.


   Negative growth – LT motors, LV switchgear, LT capacitors, Energy
  meters.


   Though Govt’s thrust is on capacity addition, main factors affecting
  power equipment industry are:
         a. Difficulty in credit availability.
         b. Decline in export orders.
         c. Growing imports.
EFFECT ON ELECTRICAL INDUSTRY


   Hit by –ve growth of 6.6% in the current fiscal, the electrical and
  Electronic Industries has urged Govt. to provide financial and policy
  initiatives to achieve targets.


   In a pre-budget memorandum to the Finance Minister, IEEMA has
  appealed that, Govt. should treat Power sector as a full fledged
  infrastructure sector and extend all policy and fiscal support to it.


   Benefits under sections 80 I – A of IT act should be extended in full to
  new Power Plants.


   Tax exemptions are available to other infrastructure activities in rural
  areas such as water supply and sanitation or rural area development
  scheme, but such breaks have not been granted to RGGVY. This would
  bring down cost of scheme to 25 % thereby enabling electrification of
  more villages.
RECOMMENDATIONS TO ENHANCE T&D SECTOR
   Clarity on funding arrangements at utility level (e.g: current
  MSETCL’s strategic alliance project)


   Pre-qualification requirements need to be relooked by
  SEBs/utilities.


   Vendor development programmes to be undertaken by utilities to
  develop contracting agencies.


   Establishing a project monitoring cell at utilities to focus on
  project job.


   Standardisation of commercial terms and conditions.


   Standardisation of Design and Engg. across the boards.
CREDIT AND EQUITY MARKET CRISIS


    In the current year, the fundamental factor which will impact the
   power sector would be the global ( and now Indian )impacting the
   Power sector will be the Indian credit and equity market crisis.


    The first casualty of this crisis will be the large number of Pvt.
   Sector Power projects.


    Current credit crisis will sharply reduce access to credit for Pvt.
   Sector projects.


    In 2009 very little progress will be achieved on Pvt. Sector BOT
   projects.
CREDIT AND EQUITY MARKET CRISIS


    Govt. will have to think of innovations like pre arranging debt and
   equity support package to ensure take off of Projects.


    The Govt. would also need to consider increasing its focus on
   Govt. funded projects being set up by PSUs such as NTPC.


    The authorities could use 2009 to address some of the existing
   problems plaguing the sector like tie-up for fuel and taking concrete
   steps to alleviate funding constraint.
    A transparent and objective bid process for allocation of coal
   linkages and coal blocks to be put into place.


    Investment in APDRP scheme will provide business opportunities
   for equipment suppliers and contractors.
CREDIT AND EQUITY MARKET CRISIS




   To sum-up:


    2009 will pose several challenges for private Investment in India and
   hence Govt. will be required to take concrete steps to alleviate funding
   constraints for private sector projects.


    Govt. will also be required to renew its focus on Govt. investment in
   Generation, Transmission and Distribution sectors.
CHALLENGES FOR SURVIVAL


  Though Govt’s. thrust is on capacity addition, main factors affecting
  speedy growth are:
   Dearth of boiler, turbine, generator manufacturers.
  (India would require minimum 3 more power plant equipment
  manufacturers having capabilities and credentials similar to BHEL)
   Quality of Chinese power equipment manufacturers
   Unavailability of finance & credit facilities.
   Limited coal and gas reserves in India
   Poor infrastructure- ports, roads, railways (making evacuation of
  imported coal from ports to users difficult)
   Availability of skilled manpower.
   Delay in commissioning of Generation projects.
WAY FORWARD


   State Govts, Railway ministry, Coal ministry to work hand-in-hand.
   GoI to grant stimulus packages to grids
   Ensure timely financial closures by
   a. Fund raising by IIFC through issue of tax-free bonds.
    b. Reduce interest rates of Banks.
    c. Remove cap on lending by Banks to Power sector.
   Solar and hydel energy ventures to be tapped.
   Provide funds from Foreign exchange reserves, tapping PF and
  pension accounts fund, long term funds available with insurance
  companies.
   PFC, REC, IDFC etc. to open up their funding for private sector
  projects.
SILVER LININGS

   15 states have corporatized their SEBs.
   A recent change made by CERC to increase ROE from 14 % to 15.5 %
  is a positive step that will allow central sector utilities to add more
  capacity in 12th plan period or beyond.
   PFC to explore lending opportunities in setting up/expansion if
  equipment manufacturing ventures.
   No indication of slowdown seen in orders flowing from PGCIL.
   Active tenders worth Rs 57.9 bn are open in transmission sector.
          a. Transmission tower : Rs 30.20 bn
          b. Sub-station         : Rs 21.16 bn
          c. Rural Electrification : Rs 6.54 bn
   For Exporters, depreciating rupee will improve margins.
   Easing of commodity prices will benefit fixed price contracts.
   Decline in commodity prices and interest rates.
   RBI has increased liquidity in last 3 months.
THANK   YOU