Emkay Global

NTPC (Buy)

CMP: ₹117.35

Target: ₹146

NTPC’s plant availability factor (PAF) was impacted at few stations in Q2FY20 due to coal supply issues emanating from heavy monsoon and strikes at Coal India (CIL) mines. Its average PAF fell to 85.4 per cent in Q2FY20 from 91.4 per cent in Q1FY20 and 85.5 per cent in Q2FY19.

The PAF decline was attributed to the prolonged strike at Talcher mine and four days of all India strike by CIL workers to protest against 100 per cent FDI in coal mining. Heavy monsoon in eastern parts of the country also affected coal production and supply.

Under-recovery in Q2FY20 is expected to be ₹320 crore versus ₹110 crore in Q1FY20 and ₹270 crore in Q2FY19. We now believe that NTPC will face an under-recovery of ₹400-500 crore in FY20E. Factoring in this, we prune our FY20/21E EPS by 4 per cent/3.6 per cent.

Furthermore, in our view, the divestment risk in NTPC has increased after the government’s recent tax sops. Hence, we cut our target price to ₹146 from ₹157 but maintain BUY rating on attractive valuations. We remain OVERWEIGHT on the name in our sector EAP.

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