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Emkay Global
CMP: ₹120.5
Target: ₹146
NTPC is engaged in the generation and sale of electricity. The principal business activity of the company is the electric power generation by coal-based thermal power plant.
NTPC’s plant availability factor (PAF) increased in December 2019 to 91.4 per cent from 87.9 per cent in December 2018, primarily on improved coal supply and high inventory across stations. The company’s average PAF improved to 89.7 per cent in Q3FY20 from 84.2 per cent in Q3FY19.
The improvement in PAF was largely attributed to better coal production at Coal India (CIL) mines in Q3FY20 (+41.7 per cent q-o-q) after the withdrawal of monsoon.
Accordingly, NTPC’s cumulative fixed-cost under-recovery due to low PAF is expected to decline to about ₹320 crore in 9MFY20 from ₹450 crore in H1FY20. The company is expected to bring down its under-recovery by ₹130 crore in Q3FY20 versus a loss of ₹290 crore in Q3FY19.
We now expect FY20E under-recovery to improve to ₹150-200 crore from previous expectations of ₹350 crore. We have marginally raised FY20/21E EPS. The stock is trading at attractive valuations (1.0x FY21E P/B) and offers a dividend yield of about 5 per cent. We retain our positive view/ overweight stance in EAP.
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