Wednesday’s results from three power-linked companies showed that a booming sector doesn’t lift everyone equally. The producers and equipment makers did far better than the lender.
Many companies reported September-quarter results on Wednesday, including several covered in separate stories: Lenskart, Nykaa, and the pharma companies Alembic, Zydus and Biocon. This roundup covers three results from the power and energy sector that show how India’s growing power demand is affecting different parts of the industry.
The companies gaining most
Exide Industries: profit up 66%. Exide, India’s largest battery maker, reported consolidated net profit of ₹286.12 crore, up 66.4% from ₹171.94 crore a year earlier. Revenue rose 21%.
Exide is benefiting from several trends at once. Record vehicle sales in October, including passenger vehicles from Maruti and Tata and two-wheelers from TVS, mean more batteries sold to carmakers and as replacements. Demand for inverter and backup batteries has grown along with India’s power demand. And Exide is building a lithium-ion cell business for electric vehicles and energy storage, which could become a major source of growth as electric vehicle sales rise. Electric two-wheeler registrations rose 48% in October.
NLC India: profit up 83%. NLC India, the state-owned lignite mining and power company, reported consolidated net profit of ₹1,328.01 crore, up 83.2% from ₹724.80 crore. The board declared an interim dividend of ₹1.50 a share and approved raising up to ₹2,500 crore through bonds.
The board also approved plans for an IPO of NLC India Renewables, its renewable energy subsidiary, and progress on a 660 MW power expansion. NLC is benefiting from the same trend as Coal India and NTPC: strong electricity demand and the need for steady, domestic power supply while imported energy is expensive. Lignite, a type of coal mined domestically, is one of the cheapest sources of power in India.
The renewables IPO could unlock value for shareholders, as listing subsidiaries often does for state-owned companies, following NTPC Green’s listing.
The company gaining least
Power Finance Corporation: profit down 2%. PFC, the state-owned lender that finances power projects, reported consolidated net profit of ₹7,681.51 crore, down 2% from ₹7,834.39 crore a year earlier.
A small decline at a large lender is not alarming, but it contrasts with strong results elsewhere in the power sector. Power companies are investing heavily in new capacity, transmission and renewable energy, which should increase demand for loans. The likely issue is competition. Banks, flush with deposits and keen to grow, have been lending more to power companies at competitive rates, which squeezes the margins that specialist lenders such as PFC can earn. Higher interest rates after the RBI’s October increase also raise PFC’s own borrowing costs.
So the answer to who gains most from rising power demand is clear from these results. Companies that produce power, such as NLC, NTPC and Coal India, and those that make equipment and batteries, such as Exide, are reporting strong profits. Companies that lend to the sector face more competition and narrower margins, even as the sector they finance grows quickly.
For investors, that is a useful distinction. A booming sector does not guarantee good results for every company in it. The companies benefiting most are those closest to the growth in demand, while those further from it, such as lenders, are seeing less of the benefit.
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