Stable policy, revenue visibility & regulated margins triggers for NTPC

As the political uncertainty settles down, investors are reviewing their assumptions about the power sector.

Demand here is likely to continue to grow strongly in the long-term at around 5-6 per cent CAGR (compounded annual growth rate) during the next 6-7 years.

Given policy continuity, several trends will persist.

One is large investments in renewable power where there is a target of 500GW by FY30, which will entail annual capacity growth of 45GW with roughly $200 billion of investments aggregated.

Another $150-175 billion will be needed to beef up transmission distribution and storage systems.

Thermal will also continue to grow steadily with 40-50GW of capacity addition (total) over the next 5 years.

The Central Electricity Regulatory Commission’s (CERC’s) tariff regulations for 2024-2029 have provided clarity for regulated power companies regarding their returns and cost pass-through mechanisms. Regulatory consistency will help the transition.

Public sector power producer NTPC remains a premier play as the country’s largest generator.

NTPC’s revenue for Q4FY24 was at Rs 47,600 crore, up 8 per cent YoY and up 11 per cent QoQ.

Reported Ebitda was Rs 14,200 crore, up 19 per cent YoY (up 25 per cent QoQ).

Adjusted PAT was Rs 6,500 crore, up 33 per cent YoY (up 25 per cent QoQ) with 142 per cent YoY rise in Other Income.

One area of concern is the rise in fixed cost under-recoveries to Rs 776 crore in FY24.

The plant load factor (PLF) for coal-fired plants was at 77.25 per cent.

There was sustained growth in regulated equity driven by margin-accretive thermal capacity, and some execution of renewables capex.

NTPC expects commissioning of 6,780MW in FY25 and 5,460MW in FY26, with 9,422MW to be commissioned in FY27.

The capex would be Rs 35,000 crore – Rs 50,000 crore per annum for next three fiscals.

The guidance is for new 15.2GW of thermal power projects (10.4GW in FY25).

NTPC installed only 324 MW of renewable energy (RE) capacity during FY24 given an installed RE capacity of 3.6GW with another 8.4GW under construction and 11.2GW in pipeline, with a mix of solar, floating solar, wind and small hydro.

NTPC targets 60GW of installed RE by FY32 and 20GW by FY26 with guidance for addition of 3GW of RE capacity in FY25.

A joint venture of NTPC and NPCIL will develop two Pressurized Heavy-Water Reactor (PHWR) projects, in Madhya Pradesh and Rajasthan for 4,200 MW. NTPC had 28 million tonnes (MT) of captive coal production during FY24, which was up 37 per cent YoY but lower than target (34MT).

Regulated equity during FY24 was Rs 104,300 crore (consolidated) and Rs 87,700 crore (standalone).

Beyond the visible revenue from generation, one upside for value-unlocking could be the proposed IPO of NTPC Green Energy Limited (NGEL) which may take place in Q3FY25 with the filing of DRHP anticipated soon.

Given a stable policy regime, NTPC has clear visibility of revenues and regulated margins.

The receivables situation may become significant, given the prior history of the power sector.

Nevertheless, many analysts have Buy recommendations with targets in the range of Rs 415-plus that offer reasonable upside from current levels of Rs 360.60.

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