Commodity Online
MUMBAI: The new CERC Unscheduled Interchange (UI) regulations are likely to have negative impact on the earnings of power utilities, as the reduction in peak UI rate would reduce the average UI realization, which would reduce the supernormal profitability of such companies.

The regulator has reduced the peak UI rate from Rs.10 per unit to Rs.7.35 per unit, which bears a negative catalyst on the merchant power plants.

According to estimations, FY10E earnings of NTPC are likely to be negative impacted by 2.5-3% due to this regulation.

The reduction in peak rates would cut the short-term tariffs from Rs.8-10 per unit to Rs.6-8 per unit, which in turn would possibly reduce the expected profitability by around 20% creating a negative impact on risk-reward perception of merchant power plants in the country.

As mentioned in the report by the Emkay Research, NTPC, which was predominantly using fuel supplied under APM, was likely to record lower average realizations per unit under UI transactions now. However, the exact quantum of impact was not possible to ascertain, but the estimations by the analysts suggested that FY10E earnings of NTPC could be negatively impacted by 2.5-3%.

Apart from NTPC other power utilities included BHEL, BEML and Bharat Bijlee. The stock price of these companies has remained strong over past one month. BHEL, which was trading at the monthly low of Rs.1284.30 during March, surged to Rs.1531.85 recently. Similarly, BEML was trading up at Rs.425.10 from its monthly low of Rs.338.30 during March. Bharat Bijlee Ltd witnessed an upsurge from Rs.307.50 to Rs.454.75.

NTPC was trading at Rs.183.70 recently, up from its monthly low of Rs.170.20 during March. The company stocks had been rising over past six months showing recovery in the poser sector. However, according to experts’ opinion, there could be slight fall in the earnings due to recent regulations by the central authority.

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