Analysts see NTPC fixed cost under-recovery falling 75% in FY20

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April 08, 2020 4:30 AM

NTPC reported a 25.6% y-o-y increase in its standalone net profit to Rs 2,995.1 crore in Q3FY20, as it saved on fuel costs from rising production from its captive coal mines.

NTPC reported a 25.6% y-o-y increase in its standalone net profit to Rs 2,995.1 crore in Q3FY20.

Improved coal availability is seen to reduce NTPC’s fixed cost under-recoveries to around Rs 200 crore in FY20 (a 75% fall), with the state-run power-generation behemoth recording better plant availability factor (PAF) amid low power demand. Power plants are contractually entitled to receive fixed costs for recovering capital expenses, even when buyers do not procure electricity from the units. However, the plants need to display a minimum PAF of 83% to claim the fixed costs. The average PAF of NTPC coal plants in FY20 increased by 4.5 percentage points annually to 90.2%.

Fixed cost represents pre-determined expenditure components, including debt service obligation and risk-free returns. “Accordingly, NTPC’s fixed-cost under-recovery is expected to decline to around Rs 200 crore in FY20 from Rs 800 crore in FY19 and Rs 380 crore in 9MFY20,” analysts at Emkay Global said in a recent note. However, the brokerage firm lowered its estimates of NTPC’s earnings per share for FY21 by 5.1% “to factor in low generation and a fall in the incentive income amid falling power demand”. Nevertheless, it has maintained a ‘Buy’ rating on NTPC factoring its risk-averse regulatory business model.

The company’s interest cost on short-term working capital are seen to rise due to the government-sanctioned payment delays by state-run electricity distribution companies (discoms). However, NTPC would earn 12%-18% penalty on such delays, much more than its borrowing cost of 7.5% – 10%. Power regulators consenting on non-payment of fixed charges by discoms due to ‘force majeure’ remains a key risk for NTPC.

NTPC reported a 25.6% y-o-y increase in its standalone net profit to Rs 2,995.1 crore in Q3FY20, as it saved on fuel costs from rising production from its captive coal mines. Lower fuel expenses offset the 2.6% y-o-y fall in revenue from electricity sales amid negative growth in pan-India power demand in the quarter. As FE reported earlier, though NTPC’s incentive income for higher plant load factors (PLFs) can come down with falling power demand, it is unlikely to impact earnings materially as they constitute only 1-2% of total earnings.

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