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Modest Capacity Progress To Hit NTPC’s Performance, Says Credit Suisse

India’s largest power producer National Thermal Power Corporation (NTPC) Ltd. will see modest capacity growth and sectoral risks will keep a lid on medium-term growth and near-term commercialisation, brokerage house Credit Suisse said.

The brokerage house reiterated its ‘neutral’ stance on the state-owned firm citing four key reasons.

  • Modest capacity addition
  • Low return on equities
  • Review related to regulatory review, capacity shutdown
  • Incremental power costlier than renewable

Credit Suisse lowered NTPC’s target price to Rs 159.40 from Rs 180 earlier.

Longer delays in installation and commercialisation, due to “reluctant customers”, is keeping the capacity addition modest, the report said. Adding to slower progress in capacity addition is a sluggish performance of second units of various plants such as those in Solapur (Maharashtra) and Meja (in Uttar Pradesh).

NTPC, 69.74 percent of which is owned by the government, is losing out to private players in the solar capacity addition, the report said. This can be cited to more aggressive and attractive bids by the private sector, while the company looks for definitive power purchase agreements. The company has commissioned only 627 mega-watts (MW) of solar capacity so far in financial year 2017-18.

According to Credit Suisse estimates, installation expectations fall significantly to below an estimated 2,500 MW from around 5,000 MW in FY21. The report expects the earning to fall by 2-3 percent for FY19 estimates.

Key Highlights

  • The estimated earnings per share’s (EPS) percentage growth for financial year 17 is down to 0.2 percent from 4.5 percent in the last financial year.
  • Only 13 to 14 percent estimated growth in return of equity in FY20, capping the price to book ratio multiple and upside to their target price.
  • Net cash (debt) to equity ratio estimated to rise up to 159.20 percent in FY19.