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MOSL: NTPC (Buy)-Capitalization to pick up pace

​NTPC: Capitalization to pick up pace

(NTPC IN, Mkt Cap USD21.2b, CMP INR165, TP INR198, 20% Upside, Buy)

Capitalization momentum to pick up

NTPC reaffirmed its guidance for capitalization of ~4GW thermal generation capacity in FY18. It has already capitalized 995MW (Kanti – 195MW, Kudgi – 800MW) by July 2017. The remaining capacities of ~3GW have already been commissioned by July 2017, and are in the final stages of capitalization. We expect further ~1GW of renewable generation capacity addition in FY18. In terms of commissioning, major capacities include Kudgi U3 (800MW), Gadarwara U1 (800MW), Lara U1 (800MW) and Meja U1 (660MW). Synchronization of these capacities is likely over the next few months, followed by commissioning a couple of months later.

Other highlights:

• ​FGD installations to begin with newly installed capacities. NTPC has already issued tenders for installing FGDs to meet the SOx norms in plants that are less than five years old.
  
• There is a proposal for pooling of tariff, which will allow NTPC to run its low-cost pit-head plants at full load. On the other hand, plants with high variable cost will be used for meeting peak load. This will be a zero-sum scheme for NTPC, while savings in transportation of coal will be fully passed on to the beneficiaries. NTPC may gain from thermal efficiencies.
  
• NTPC is in dialogue with the regulator for permitting a genuine loss of GCV during storage. CEA is doing a technical evaluation for standardizing compensation. If permitted, NTPC will regain the lost incentives.
  
• Management is guiding for an increase in regulated equity by 10% in FY18E, 15% in FY19E and doubling by FY22E. This appears conservative against the guidance of addition to commercial capacity in FY18E and FY19E.