Moneycontrol Bureau
Shares of NTPC tanked 11.5 percent, hitting 7.7-year low at Rs 116.95 intraday on Monday as the Central Electricity Regulatory Commission (CERC) final regulations for FY15-19 provides no respite to the company. The norms will fix tariffs for the power sector for the next five years.
Analysts expect the company's operational return on equity (RoE) to reduce to 18-19 percent from 23 percent earned in FY13.
Due to significant changes in the incentive structure, book RoE for NTPC will fall to 11- 11.5 percent from 13.5 – 14 percent for FY13.
Harshvardhan Dole, Vice President -Institutional Equities, IIFL sees recurring hit of around 15-20 percent on NTPC's EPS FY15 onwards.
Analysts feel bottomline may take a knock of Rs 1,100 – 1,350 crore.
Tightening of norms for NTPC will erode most of the incentives, the state-run power producer enjoyed. Continuation of capex will also become a concern now.
Here are key takeaways for NTPC
Negatives
1. Tax arbitrage due to the grossing up of pre-tax RoE to post tax RoE with income tax to be recovered on an actual basis benefit has been taken away.
a. Contributed roughly Rs 850 crore (2.5 percent of operational RoE) to NTPC.
b. Tax will be on actual basis. It will reduces operational RoE by 2.5 percent.
2. Shift from availability-based incentives to plant load factor (PLF)-based
a. Incentive structure for generation projects has been reversed from Plant Availability Factor (PAF) with 85 percent normative threshold, to PLF-based, with a normative threshold of 85 perecnt.
b. NTPC earns incentives of Rs 650 crore on PAF based availability which will no longer be available.
c. See net reduction of Rs 400 crore in annual earnings - to dent operational RoE by another 1.5 percent.
3. Annual Fixed Cost (AFC) recovery disincentive threshold has been lowered from 85 percent to 83 percent for first three years due to coal availability issues.
a. The company will be disincentivised if actual PAF is lower than normative PAF of 83 percent.
4. Station Heat Rate (SHR) has been lowered
a.For 500 MW & above, SHR has been reduced from 2,425 kcal / kWh in previous regulation to 2,375 kcal/kWh
b. Implies loss of Rs 650-Rs 700 crore. It will reduces operational RoE by 2 percent.
At 12:08 hrs NTPC was quoting at Rs 118.85, down Rs 13.30, or 10.06 percent on the BSE.
Posted by Nasrin Sultana
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