Motilal Oswal's research report on NTPC
The Ministry of Power (MoP) has issued a notification on Late Payment Surcharge (LPS). As per the new rules, LPS would be based on one-year SBI MCLR v/s a fixed rate of 18% p.a. specified in the tariff regulations issued by CERC. In the current scenario, this would imply a LPS of 12-15% p.a. We note that: a) despite the 18% p.a. CERC specified rate, NTPC is currently charging 12% p.a. on overdue, which are settled under the Atmanirbhar scheme, and b) NTPC's WC borrowing cost has also declined ~300bp over the past one year, thereby softening the impact of lower LPS rate. The impact on P&L is therefore not significant. We had already baked in lower LPS income (based on 12% p.a.) for FY22E/FY23E and hence leave unchanged our estimates. The overdue and LPS situation is a key monitorable, particularly with the Ministry now stepping in to supersede the regulations set by CERC. The new rules lay emphasis on reducing overdue as well, the addressing of which is of prime importance.
We expect the situation with respect to receivables to improve, which would help ease investor concerns. We remain positive on the stock with valuations at 0.8x FY22E BV and 6% dividend yield. Maintain Buy with a DCF-based target price of INR141 per share.
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