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MOSL: NTPC (Buy)-Regulatory structure provides demand insulation; FY20 commercialization at all-time high

(NTPC IN, Mkt Cap USD12.6b, CMP INR98, TP INR148, 52% Upside, Buy)

Amid a nationwide lockdown, India’s power demand has declined 20–25% YoY. However, regulated utility companies such as NTPC remain well-insulated from these external conditions. NTPC’s profitability is largely dependent on the ability to operate and declare availability for its plants. The direct impact of lower power demand / plant utilization is seen largely in the form of lower PLF incentives (1–2% of earnings).
Given the essential nature of power generation, operations continue at NTPC’s plants. Coal stocks at power plants have also increased amid a ramp-up in Coal India’s production and lower power demand, thus reducing risks related to fuel availability.

Moreover, NTPC has commercialized 5.3GW of plants in FY20, the highest ever in a single fiscal year. While an extended country-wide lockdown could impact upcoming commercialization plans (FY21 guidance: ~5GW), we note: even if we assume no incremental commercialization, NTPC should register 6–7% earnings growth in FY21 as the full benefit of recent additions flows through.

We build in some delays on execution and expect commercialization of 3.6GW in FY21. The current stock price implies 0.8x FY21 P/BV, which is at a ~40% discount to its long-term averages. Reiterate our Buy rating on the stock, with TP of INR148/sh.