You are using an older browser version. Please use a supported version for the best MSN experience.

NTPC’s prospects brighten

LiveMint logoLiveMint 21-05-2014 Ravi Krishnan

NTPC Ltd’s stock has gained 12% since it announced better-than-expected March quarter numbers. The fact that power sector valuations had been beaten down also helped.

The highlight was an improvement in its operational performance. Plant availability factor (PAF) in the March quarter was 99.75%, an improvement of over 4 percentage points from a quarter ago as coal supplies went up and its Mauda unit in Maharashtra stabilized. March was the last quarter when NTPC’s regulated plants earned incentives based on PAF.

More surprisingly, plant load factors (PLFs), or capacity utilization, also went up despite weak demand. Coal plant PLFs improved about 6.3 percentage points from a quarter ago and 1.8 percentage points from a year ago. This, when the PLFs of all thermal power generators fell by an average of 4 percentage points from a year ago despite it being election season.

The PLF numbers would have added a bit to investor optimism since incentive regulations for 2014-19 depend on capacity utilization. After the Central Electricity Regulatory Commission (CERC) finalized these norms, NTPC shares had lost some value as brokerages cut down on their earnings estimates for the next couple of fiscals.

These fears are justified to the extent that keeping PLFs ahead of 85% (the minimum at which incentives will kick in) can prove to be difficult at a time when state electricity boards are not able or willing to buy power owing to their straitened finances. As Nomura pointed out in a 7 April note, in 2013-14, seven plants of NTPC with 12.4 gigawatts capacity managed PLFs above 85%. That is less than one-third of NTPC’s overall capacity.

Secondly, the company has also been in the news for aspiring to acquire `30,000 crore of thermal plants from other developers. That could provide as much as 6000 megawatts of ready capacity if the company is able to get good prices. NTPC has about `15,000 crore of cash and raising money shouldn’t be too much of a problem.

If the new government is able to boost coal availability, the state-owned firm will be one of the first beneficiaries as well. This though will take some time and investors will have to also consider how much risk will be added.

Overall, prospects for the company have brightened in recent times, but a clear re-rating is likely to happen only when June quarter earnings reveal the full impact of the new rules.

More From LiveMint

image beaconimage beaconimage beacon