Power sector picks up in April as generation and RE show encouraging growth

Order inflows in the power sector were poor in April 2011, but power generation registered an encouraging 7.6% growth year-on-year, andalternate energy sources did much better. Power stocks have by and large underperformed the market over the past three months

Power forms a vital part of infrastructure development. In India, recently, the sector has been riddled with poor order inflows. But the growth in power generation has been encouraging. Renewable forms of power generation also have shown strong growth over the past few months. There have been large orders for wind projects and nuclear power generation and hydro generation have crossed the targets set by the Central Electricity Authority (CEA) for April 2011.

According to a research report by IDFC Securities on the status of infrastructure development, "Order inflows (in infrastructure) in April 2011 fell sharply by 49% year-on-year, due to very few orders in the power generation segment, which has been the mainstay of order inflows."

Power generation has grown by 7.6% over the previous year for April 2011. In 2010-11, the power generation sector contributed 45% to the total order inflows of the infrastructure sector. Power transmission and distribution (T&D) was the second highest contributor with 16.9%.

However, orders for the power generation sector fell in April 2011 to Rs8 billion, which is the lowest in two years. Consequently, the order inflows for infrastructure overall during the month fell by half to Rs76 billion from the corresponding period a year ago.

But, IDFC says, there was some relief for the power sector in May. L&T and BHEL received a few large orders, and Gamesa got a large order from Caparo Energy for wind projects in India. This resulted in a 68% yearly jump in order bookings this month.

The highest growth in power generation was in the nuclear power segment that grew by 40.5% from 18,631 MU (power unit) in FY2009-10 to 26,182 MU in FY2010-11. Nuclear generation achieved a remarkable growth rate of 50.72% over March-April 2011 due to improved availability of nuclear fuel to the nuclear plants.

Nuclear power generated 2,660 MU in April, exceeding the target by 612 MU. Energy generated from hydro-electric stations (excluding import from Bhutan) during the month was 8,875 MU against the target of 7,522 MU. Hydro-based plants and coal-based plants registered a growth of 3.40% and 9.22% respectively in March-April 2011. Thermal power generation grew only by 3.4% due to the negative growth rate of gas-based stations.

Alternate energy generation has immense potential as generation of clean and renewable energy is top priority for the country. The growth in nuclear power generation and hydro power generation has been encouraging.

Unfortunately, the performance of power company stocks has not been great. The BSE Power index was down by 12.11% over FY2010-11, against a 10.96% gain by the Sensex in this period.

According to a chart prepared by IDFC, on the performance of power stocks in relation to the Sensex over the past three month, power equipment manufacturer ABB Ltd outperformed the Sensex by 23.5%, whereas the public sector unit BHEL was lower by 4.4%.

Among power utilities, Jaiprakash Power Ventures was the top performer, beating the Sensex by 26.2%. NTPC and Adani saw lower growth compared to the Sensex-they were 1.3% and 7.5% lower.

Most power transmission companies also displayed poor performance. Kalpataru and Jyoti Structures were 4.5% and 6.2% lower than the Sensex.