NTPC's shopping spree may turn out to be a gift for its investors

Seen more as a play on dividend, investors may not be disappointed with NTPC’s flattish stock performance over the previous year. 

In fact, analysts remain bullish on the firm. This is despite the power sector continuing to languish from weak demand for electricity and supply-side constraints, including availability of coal not easing for the sector. 

Majority of the analysts say the recent buys and capacity expansion plans will work to NTPC’s advantage. 

ICICI Securities says that from FY20-23, NTPC may add over 14 Gw in standalone capacity, which will boost its regulated equity by Rs 40,000 crore. Regulated equity is the portion of money that earns fixed returns of 15.5 per cent, as determined by the regulator. 

The muted growth in regulated equity was a reason for the poor stock performance.  In addition, analysts estimate NTPC’s acquisition of THDC and NEEPCO to be value-accretive. “A conservative estimate results in an increase of Rs 350-450 crore to NTPC’s FY21 earnings, translating to a 2.5-3.0 per cent increase in earnings per share,” they add. 

What’s also working well is the marginal improvement in pace of output, referred to as plant load factor (PLF), which improved to 91.4 per cent in December from 87.9 per cent a year ago. The metric measures average power generated by a plant to the maximum power that could have been generated for a given time period. 

Analysts say this indicates a pick-up in demand for electricity, led by an increase in usage of room heating equipment in North India. This also means under-recoveries may reduce for NTPC. “We now expect FY20 under-recovery to reduce to Rs 150-200 crore, from the earlier estimate of Rs 350-400 crore,” say analysts at Emkay Global Financial Services, having increased their FY21 earnings estimates by 1.2 per cent. 

BS Research Bureau

NTPC’s recent shopping spree may turn to its advantage rather than being a drain on its financials, provided the underlying operating environment does not deteriorate from current levels. Benign valuations at 1x its FY21 estimated earnings, NTPC’s regulated earnings model, and a high dividend yield of 5 per cent, all position the stock favourably in the current environment.