Stock Market

NTPC may be a good defensive bet on earnings growth visibility

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ET Intelligence Group: Amid the current volatility in the markets, NTPC could offer a top defensive bet given its better earnings visibility.

Analysts expect the company to deliver a double-digit earnings growth in the next two years. The company’s cheaper valuation and consistent dividend paying record are further seen as contributing factors.

At Thursday’s closing price of Rs 129, the stock was traded at 1.2 times the book value which is on a lower side and offers a dividend yield of 5 per cent. The state-owned NTPC reported 91.4 per cent plant availability factor in the June 2019 quarter — 540 basis points higher than the previous year and the highest in the last eight quarters.

This will make the country’s largest power producer eligible for more incentives from the buyers which will help reduce the extent of under-recoveries. In the previous fiscal, under-recoveries were nearly 7 per cent of the company’s net profit.

The company’s management expects to eliminate under-recoveries this fiscal.

This along with 5 per cent rise in capacity addition may lead to a double-digit earnings growth for the next two years. Plant availability factor (PAF) is the amount of time the plant is available to generate electricity.

It is different from plant load factor (PLF) which represents capacity utilisation of a power plant.

Higher PAF allows NTPC to earn incentives even if the buyers don’t buy more electricity.

NTPC’s PAF has been on the rise, thanks to higher coal availability and better inventory management.

The average coal inventory at NTPC plants is now at comfortable 30 days as compared to 15 days in the past. NTPC is working with Coal India and the Indian Railways to ensure seamless availability of coal.

It gave Rs 5,000 crore advance to the railways in FY19, which led to reduction in transport bottlenecks.

To further improve the logistics it has agreed to pay Rs 10,000 crore in FY20.

It is also working towards increasing coal import and has issued tenders to purchase three million tonnes of coal. In addition, its captive coal mines are ramping up fast.

in FY19, the two coal mines produced 6.8 million tonnes coal, which should accelerate by 80-100 per cent by FY21.




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Category: Stock Market


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