INSUBCONTINENT EXCLUSIVE:
By DK AggarwalHistory does repeat itself
The utilities companies are doing well, as they did during the Global Financial Crisis (GFC)
During the 2008 financial crisis, they stood out from the mangled debris
Business models of the utilities companies have assured revenues and offer strong dividend yields too
The industry has also been experimenting with new technologies and business models.
The Government of India has been consistently addressing
both supply and demand side issues through policy and reforms to ensure sustained development of the power sector
Moreover, the government has undertaken a number of policy and reform initiatives like Saubhagya, affordable 24x7 Power for All, IPDS, UDAY,
and this has accelerated capacity addition in the country.
As regulated tariff models assure fixed RoE on power generation and distribution
asset, the earnings outlook for the power sector is relatively immune to concerns of the Coronavirus crisis.
Utilities are interest
rate-sensitive, as they require constant investments to fund capital projects
So, the recent RBI decision to lower interest level will benefit the utility operators, as they will be able to raise funds at lower rates
Recently, the Ministry of Power relaxed the security payment mechanism by power distribution companies (discoms).
Going forward, utility
companies would continue to see meaningful growth, driven by an uptick in power demand and the reforms introduced by the government
Power consumption is estimated to reach 1,894.7 TWh in 2022
Utilities are safe investment options as these are mostly regulated and remain more or less steady on the face of economic
fluctuations.
Companies operating in better regulatory environments are the cream of the crop
These stock may provide investors with stable earnings and performance along with regular dividend
Notably, the utilities companies are less affected by economic disruptions and are considered safe investment options.
The current valuation
of utilities stocks are at least 50 per cent below those we had during the Global Financial Crisis (GFC)
With yields on long-term (10-year) government securities expected to slip below 6 per cent, high dividend yield stocks will remain
attractive due to lower interest rates
Thus companies like NTPC, PGCIL, Torrent Power, NHPC, SJVN and Tata Power with a return on equity (ROE) of about 15 per cent look
interesting at this point of time.
Chairman and MD, SMC Investments and Advisors
