According to the ratings agency, this trend will lead to negative free cash flow over the medium term.

The ratings agency in its recent report pointed out that the sector also faces fuel shortages, lower profitability and possible up-tick in acquisitions.

However, rating outlook on Indian utilities remains stable in 2015 because they continue to have strong operating cash flows and healthy balance sheets.

"While the new tariff order passed in 2014 will have some negative implications for issuers like NTPC, there is now regulatory certainty on tariffs until FY19," the report was quoted.

Power industry is likely to expand capacity by 15-18 gigawatts in 2015. While capacity will increase, fuel supply is not likely to keep pace, leading to fuel shortages for both coal-fired and gas-fired power plants in 2015.

Fitch expects that there is a possibility for consolidation in the industry in 2015, with stronger power generation companies looking to acquire smaller, distressed generation assets.Other acquisition targets could also be coal upstream assets to improve vertical integration and fuel security.

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