The Central Electricity Regulatory Commission (CERC) released draft regulations which will decide the multi-year power tariffs for 2014-2019. The draft will set basis for regulations that will impact all regulated power generating and transmission companies like NTPC, NHPC, Sutlej Jal Vidyut Nigam, Torrent Power, whose tariff rates are set to get cheaper. The final regulations will be released in April 2014. Public hearing on these draft guidelines will be held between January 15 and 16.
Following are brokerages' view on NTPC, the stock which is likely to be impacted the most.
CLSA: The earnings of NTPC may be hit by 4-5 percent if the CERC guidelines are implemented without any changes.
Barclays: The impact on NTPC’s earnings could be nearly 7-8 percent.
Morgan Stanley: NTPC’s earnings in fair value would remain largely unchanged.
This new draft is set to remove tax arbitrage that existed when companies like NTPC charged a higher tax rate from its customers leading to tax arbitrage for NTPC alone at Rs 500 crore per year.
CLSA: That that impact of removal of tax arbitrage could be anywhere between Rs 700-800 crore for NTPC.
Barclays: The impact would be nearly 150 bps on the ROE
Morgan Stanley: NTPC would be hit by nearly 100 bps.
It is to be noted that all the three brokerages believe that they have already priced in this major tax arbitrage in their earnings from FY15 onwards, so they do not see major change in terms of their numbers from FY15.
Shift to PLF
The draft guidelines also talk about the shift to generation linked incentives based on plant load factor (PLF) compared to the plant availability factor earlier.
CLSA & Barclays: It will be difficult for NTPC to earn any incentive because the company operates below 85 percent PLF level, which is the basis for earning any incentive.