How will SEB bailout package impact banks, power shares?

Moneycontrol Bureau

The government on Monday approved a financial package for cash-strapped state electricity boards (power distribution companies). Under the package, states will take over half the debt of loss making SEBs, while banks and financial companies that have lent to the SEBs will restructure the remaining debt. Debt restructuring is when the original terms of the loan (repayment schedule, interest rate) are diluted so as to enable the borrower to repay the loan.

So which stocks and sectors stand to gain from the government largesse? Check out what brokerages have to say:

Morgan Stanley:

"The proposed restructuring package may lift sentiment in the power sector especially for stocks such as Lanco which have large outstanding dues from state-electricity boards. Most IPPs have outperformed in the last 3 trading days on the hope that the government is likely to announce more reform measures in the power sector. We believe stocks are pricing in a lower cost of equity, thus resulting in outperformance. A lower cost of equity would benefit Lanco, Adani Power and Indiabulls Power the most."

Bank of America Merrill:

"Key beneficiary of this move apart from PSU banks, are utilities, with high undisputed receivables (R Infra-Mumbai, Delhi, Tata Power-Delhi, Neyveli, NHPC, NTPC) and IPPs whose capacities are coming on-line in near future. We maintain our cautious view of utilities as risks of bad bids (Tata Power, Adani Power, Lanco), fuel gaps (Adani Power, Lanco, NTPC) and regulatory disputes (Adani Power, JP, Lanco, Tata) still remain un-addressed."

Deutsche Bank:

"Beneficiaries are likely to be power producers with spare capacity (read merchant) but with own/imported fuel sources-JSW Energy and Jaiprakash Power. On financing side, financiers like PFC, REC and PSU banks will benefit partly from chronic asset quality issues."

Citi:

"Key beneficiaries from the package will be Lanco Infratech (high receivables, benefit from merchant upside), JSW Energy (high merchant exposure) andPower Grid Corporation, as concerns on small receivables build-up will ease now."