Amid muted growth in electricity demand and rising discoms dues due to the limited improvement in the financial profile of distribution companies (discoms), credit rating agency India Ratings and Research (Ind-Ra) has revised the power sector outlook from stable-to-negative to negative for the next financial year (FY21).
As per the report, power demand is likely to be subdued in FY21, on the back of weakening consumer sentiments due to declining GDP growth; however, profitability is likely to remain unaffected due to the regulated nature of operations for most of the entities. However, the rising discom dues are expected to result in an elevated leverage level for the sector.
The rating agency believes the discom resolution plans have provided lower-than-anticipated benefits, and hence the focus could shift to the privatisation of discoms, either through the franchisee model or the licensee model.
Besides, Ind-Ra is expecting the renewable capacity addition to remain slow in FY21, on account of lower equity internal rate of returns generated by operational plants, limited domestic long-term funding availability post non-banking financial company crisis, continued poor health of discoms, and continuing infrastructure challenges on land acquisition and evacuation infrastructure.