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MOSL: UTILITIES-Regulated entities constructive on regulations- Delhi Power Day takeaways

Utilities: Regulated entities constructive on regulations; Delhi Power Day takeaways; NTPC, PWGR – our top picks, Downgrading NHPC to Neutral

 

We hosted a group of investors in Delhi, meeting senior management of NTPC (Commercial, Projects, Finance, Fuel), NHPC and Power Grid to get more clarity on the impact of the Tariff Regulation 2019-24, upcoming projects and other developments. We also met officials from CERC. 

Regulations are constructive, address under-recoveries and maintain continuity

All the three companies (NTPC/NHPC/Power Grid) mentioned that the Tariff Regulations 2019-24 were constructive, having maintained the RoE and the tariff structure. The regulations have also addressed under-recoveries in cost, primarily on account of O&M, and for NTPC also for the loss in GCV of coal between as received and as fired point. The change in working capital norms may not necessary impact earnings because now the payment term will be tighter and surcharge will be levied sooner in case of a delay. In our view, NTPC benefits the most out of the Tariff Regulations, followed by NHPC and PWGR. 

NTPC: Some slippage in commercialization; PWGR: Positive on new ordering

NTPC maintained capacity addition/commercialization outlook of ~5GW (group) in FY20, despite the slipping of ~2.2GW capacity addition in FY19. PWGR expects a total pool of ~INR430b new projects in transmission space driven by growth in renewable space, which will be awarded either through RTM (Regulated tariff Mechanism) or under TBCB (Tariff based competitive bidding). PWGR has strong competitive position due to its strong balance sheet and track record of execution.  Many of private competitors have moved out from the TBCB space. NHPC expects an increase in capex intensity as it is investing in new projects.