NTPC likely to generate higher operating profit in FY20: Fitch Ratings

State-owned power producer NTPC is expected to generate higher operating profits in the current fiscal, says a report.

"It expects NTPC Ltd (BBB-/Stable) to generate higher operating profits in the financial year ending March 2020 (FY20), partly driven by improvement in availability factors across most of its power projects, resulting in lower under-recoveries," Fitch Ratings in the report said.

The better availability will be based on higher coal procurement from the group's new captive mines, imports and Coal India Ltd.

"An accident at the 1,550 MW Unchahar power project and the shutdown of the 705 MW Badarpur power project in FY19 resulted in under-recoveries, the difference between fixed costs and capacity payments of Rs 4.7 billion," Fitch said.

The company reported total under-recoveries of Rs 8 billion (around Rs 54,822 crore) in FY19, down from Rs 14.4 billion (around Rs 98,679 crore) in FY18.

The annual under-recoveries were due to a few projects recording lower availability than the benchmark.

However, the portfolio-level average plant availability rates in FY 2018-19 were 87 per cent for NTPC's coal-based plants and 92 per cent for the company's gas-based plants, it said.

Fitch expects NTPC's working capital pressures to continue because of delays in payments from the company's counter-parties, which include financially and operationally weak state-owned distribution companies, and advances to Indian rail operators to manage coal transport.

The company recorded late payment charges of Rs 13 billion in last financial year, mainly due to overdue receivables from its counter-parties.

The company entered into agreement with Indian Railways to extend Rs 100 billion in 2018.

NTPC has increased its standalone installed capacity to 47,325 MW in FY19 from 46,100 MW a year earlier. Its commercial capacity increased to 45,725 MW from 44,500 MW.

The commercial capacity addition of 1,930 MW (1,225 MW net of the decommissioned 705 MW Badarpur power project) in FY19 was lower than the Fitch's estimate of about 3.8 GW, likely because of project delays.

The agency expects NTPC to commercialise about 4.6 GW of capacity in FY20 on a standalone basis.

"We expect FY20 standalone capex to remain high, at around Rs 200 billion in line with management's guidance, which will lead to negative free cash flow. The capex will also include expenditure on emission control measures, which will be included in tariff computations by the central electricity regulator, according to management," it added.