NTPC hits 5-year low

NTPC is the top loser on the BSE, down over 10% ay Rs.118.90 and this is after it hit a new five year low at Rs.116.95.

The stock is down for the same reason that Tata Power is down, except that NTPC will be adversely affected due to the CERC ruling. The impact on NTPC is negative as along with the compensation and tariff hike, CERC has reduced incentives for generation as well as power transmission. This means NTPC will now earn lesser through incentives, operational efficiency and tax benefits. The company will also bear the brunt of shifting the incentive structure from Plant Availability Factor to Plant Load factor – meaning it will get benefit only if power is purchased and not merely notification of availability. The main buyers of NTPC are the state electricity boards and they only notified their ‘availability’ and henceforth, unless they purchase, NTPC will not benefit. The PSU's ROE which currently stands at over 24% will now slip down consierably below 20%.

All the moves made by CERC are prudent and will increase the efficiency of the sector in the long run but for now, NTPC will have to learn to live and operate in this new regime.