Moody's upgrades power sector outlook to stable on generation uptick

Rating agency Moody's on Monday upgraded the outlook on the power sector to stable from negative, citing the fifth consecutive month of generation growth in January.

The Central Electricity Authority last week reported a 3.1 per cent year-on-year growth in power generation in January, making it the fifth consecutive month of generation growth after six months of decline driven by coronavirus pandemic.

For the first 10 months of the fiscal 2021, power generation growth declined 2.9 per cent year-on, compared to earlier expectations of a minimum 4-5 per cent decline. But renewable energy generation (excluding hydro power) grew 4.3 per cent during the same period and wind the weakest down 12 per cent.

"We have changed the outlook for the power sector to stable from negative, recognising the better prospects for the sector as a result, amid an improved macroeconomic backdrop," Moody's said in a note.

Sustaining generation growth indicates stabilization of the operating environment, which was severely impacted by the lockdowns. Our expectations of a rebound real GDP growth to 10.8 per cent in fiscal 2022 further underpins the potential for improving power demand and a more stable picture for the sector, it said.

The agency also said it does not expect any further material deterioration in the cash conversion cycle for power companies from current levels, which also supports the outlook.