NTPC (Standalone) - Rating: BUY; Target Price: Rs165 - Centrum

During the quarter, we expect NTPC to report 53.7 BU (-4% YoY and +6% QoQ) of energy sales. Owing to weak demand, we expect NTPC to report 35% PLF for gas and 83% for coal stations. Total gas based generation is down by 45% YoY whereas higher capacity base and weak demand environment will keep coal based generation marginally down by 1% YoY.

Despite pick-up in PLF for coal stations, the PAF for coal / gas stations is expected to be at 88% / 92%, which ensures recovery of fixed cost as well as earnings through incentives and hence is not a concern. Mining from Pakri Barwadih coal block has not commenced as NTPC faces issues on land acquisition whereas transport through inland waterways has commenced and volumes are expected to pick-up over the next 6-8 months. We expect selective recovery in demand in 2HFY14 led by FRP implementation and possible up-tick in demand prior to general elections.

CERC draft tariff norms imply adverse earnings impact of 10% to FY15E. We had already factored-in adverse impact of Rs8bn on account of non-availability of tax-arbitrage in our IC report in Jul-13. We expect CERC to soften its stand in final regulations for earnings from PAF incentives by either maintaining the status quo or reducing the threshold PLF from 85% to 80% or less. We hence await tangible developments to factor-in any impact of tariff regulations. The final regulations are expected to be released in Feb-14.

Source : Equity Bulls

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