Sector Update | 10 March 2019
Utilities
NTPC: Financials Snapshot (INR b)
Y/E MAR
2019E 2020E 2021E
Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR
) (%)
RoE
RoCE (%)
P/E (x)
P/BV (x)
931.7 1,028.6 1,125.1
273.7 331.7 382.9
110.1 136.7 157.0
13.3
16.6
19.0
25.1
24.2
14.8
133.0 142.4 153.6
10.3
12.0
12.9
6.7
7.8
8.6
11.4
9.2
8.0
1.1
1.1
1.0
CERC tariff regulation 2019-24 is constructive
Raise earnings by 3-4% for NTPC and by 5-6% for PWGR; Re-iterate Buy
The Central Electricity Regulatory Commission (CERC) has notified the tariff regulations for
FY20-24. The regulations are applicable to thermal and hydro generation projects, and also
to transmission projects that are regulated by CERC (including all majority-owned central
PSUs and a few regulated private power projects). The tariff regulations are a benchmark
for state regulators to frame their respective state tariff policies.
Ensures continuing and reasonable returns on regulated assets…
PWGR:
Financials Snapshot (INR b)
Y/E MAR
2019E 2020E 2021E
Sales
335.2 380.0 409.4
EBITDA
299.4 341.1 367.9
95.5 108.7 118.4
NP
18.3 20.8 22.6
EPS (INR)
EPS Gr. (%)
10.4 13.9
8.8
BV/Sh. (INR )
115.2 127.9 141.9
16.7 17.1 16.8
RoE (%)
8.1
8.4
8.6
RoCE (%)
P/E (x)
10.2
9.0
8.3
P/BV (x)
1.6
1.5
1.3
NHPC: Financials Snapshot (INR b)
Y/E MAR
2019E 2020E 2021E
Net Sales
87.9 101.8 108.9
EBITDA
46.5 59.7 65.3
PAT
22.1 26.6 31.0
EPS (INR)
2.2
2.6
3.1
Gr. (%)
-9.9 20.4 16.6
BV/Sh (INR)
29.9 30.8 32.1
RoE (%)
7.4
8.7
9.8
RoCE (%)
5.6
7.3
7.9
P/E (x)
11.4
9.5
8.1
P/BV (x)
0.8
0.8
0.8
The regulations have kept regulated RoE unchanged at 15.5% (and 16.5% for
hydro assets) — the third-consecutive five-year tariff regulation period when
the regulators have not tinkered with regulated RoE. Thus, providing a strong
direction for long-term assured returns for developers and investors.
The two-part tariff structure has been retained (fixed charge for capital returns
based on plant availability and variable charge for covering the fuel cost).
The allowance of 85 kcal recognizes the loss in GCV of coal between ‘as
received’ and ‘as fired’ point. It is a welcome relief for coal-based plants.
O&M allowance for coal-based plants was hiked by more than ~8% over FY19
for the base period FY20, which recognizes impact of the recent wage increase
in public sector companies. Annual inflation in O&M allowance was, however,
cut from the ~6.3% earlier to 3.5% (but better than 3.2% proposed in the draft).
The O&M allowances have become more accommodative over the years. Water
charges and capital spares was already based on actuals (since the FY14
regulations). The new regulations will reimburse security expenses as well on
actuals. It will improve recovery and management of overhead cost for
regulated generation and transmission projects.
There is marginal increase in normative auxiliary and station heat rate allowance
for certain unit sizes of coal-based plants.
…with some tightening in operating norms
Availability of plants will be monitored separately for high (3-month) and low
demand (9-month) seasons. Availability will also be monitored for peak hours
(4-hour) and non-peak hours (20-hour) of each day. Any gap in availability
during high demand and peak periods will not be allowed to be recouped by
higher availability during low demand and non-peak season. The recovery of
fixed charge, which is based on availability of plants, has thus become stringent.
Plants will have to ensure ramp rates of 1% per minute else they will lose RoE of
0.25%. A higher than 1% ramp rate will earn 0.25% additional RoE, subject to a
cap of additional 1%.
Normative receivable days and coal inventory days for pit-head stations is cut by
15 days and 10 days, respectively.
Sanjay Jain – Research Analyst
(SanjayJain@motilaloswal.com@MotilalOswal.com); +91 22 6129 1523
Research Analyst: Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549;
Aniket Mittal
(Aniket.Mittal@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
8 August 2016
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