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Reduced coal concerns, pick-up in industrial demand to help NTPC grow

Getting past its coal woes has brought major relief for NTPC. The central government has re-allocated NTPC five coal blocks, which got cancelled because of the apex court verdict on coal block allocation.

, ET Bureau|
Updated: Jun 08, 2015, 08.22 AM IST
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Getting past its coal woes has brought major relief for NTPC. The central government has re-allocated NTPC five coal blocks, which got cancelled because of the apex court verdict on coal block allocation.
Getting past its coal woes has brought major relief for NTPC. The central government has re-allocated NTPC five coal blocks, which got cancelled because of the apex court verdict on coal block allocation.
NTPC is becoming analysts’ favourite. Despite a 5% fall in net profit in the fourth quarter of 2014-15, experts are getting bullish on the counter. This is because with improving coal availability, higher pay load factor (PLF) — a measure of capacity utilisation—and reduced regulatory uncertainty, the worst is behind NTPC.

Getting past its coal woes has brought major relief for NTPC. The central government has re-allocated NTPC five coal blocks, which got cancelled because of the apex court verdict on coal block allocation. Now, NTPC has 10 coal blocks.

Reduced coal concerns, pick-up in industrial demand to help NTPC grow

Improved coal availability, both from its captive mines and from Coal India, should help it increase PLF and better its fixed cost recovery. Improved coal availability should also provide much-needed fuel security for the company’s upcoming projects. In fact, NTPC is in discussions with several private companies and also public sector undertakings to acquire their power assets which are stuck for want of coal.

The company’s annual net profit for 2014-15 was on the lower side because of the impact of new tariff regulations. Since the new tariff regulations provide lesser return on equity (ROE), NTPC’s net profit may be 18-19%, over the next four years — it was 22-24% during the previous tariff regime. However, the big under performance in the recent past has factored in this decline.

In addition to coal and new tariff regime issues, the power sector continues to face constraints such as lower intake due to lower industrial demand, pricing pressures, delays in clearances and high debt.

NTPC is India’s largest power producer with an operating capacity of 43GW and an established execution track record and, therefore, is much better placed to deal with these issues compared to smaller power producers. The expected economic recovery should result in a higher power demand from industries which should help NTPC increase its PLF.

The company is also part of the government’s ambitious solar mission, and plans to set up 10GW, grid-connected, renewable energy projects over the next five years. Of this, 1 GW capacity of projects are expected to get commissioned in 2016-17. This is another factor that can act as a trigger for the counter.

Reduced coal concerns, pick-up in industrial demand to help NTPC grow
Reduced coal concerns, pick-up in industrial demand to help NTPC grow

Selection Methodology

We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock.

To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.

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Coal India to switch over to mechanised coal transportation by FY'24

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