NTPC, Power Grid rally 5% as CLSA retains bullish stance after new tariff norms

CLSA sees 7-18 percent weakness over 3 months in regulated utility stocks, which is an opportunity to add NTPC & Power Grid.

NTPC and Power Grid Corporation of India shares rallied more than 5 percent in morning as global brokerage house CLSA retained its bullish stance after new tariff norms.

Power regulator Central Electricity Regulatory Commission (CERC) released its draft tariff regulations, which are applicable for five years during FY19-FY24.

"Progressive FY19-24 draft regulation preserved regulatory integrity and is a great balancing act of maintaining a 15.5 percent return on equity (RoE)," CLSA said, adding 15.5 percent RoE could add 6-8 percent to NTPC & Power Grid's FY20 EPS.

The investment firm further said extra allowance for security expenses, allowing coal-loss costs to independent power producers (IPP) are key positives.

CERC also announced lower effective plant availability factor (PAF) & IPP friendly measures in its draft regulation.

CLSA sees 7-18 percent weakness over 3 months in regulated utility stocks, which is an opportunity to add NTPC & Power Grid.

The research house has a buy call on NTPC and overweight rating on Power Grid.

Bank of America Merrill Lynch, which slashed its target price for NTPC to Rs 173 from Rs 190 earlier and Power Grid to Rs 221 from Rs 231, said the regulator is fair by not penalising the capex incurred in the past but the tightening of efficiency norms is a negative for both companies.

The regulator made strong push to dis-incentivise generation from plans older than 25 years and cut the equity base for plants more than 25 years materially.

Meanwhile, the country's largest power generation company acquired Barauni Thermal Power Station (720 MW) in district Begusarai, Bihar from Bihar State Power Generation Company Limited.

The 720 MW coal-based power station has 2 units of 110 MW each (under R&M) and 2 units of 250 MW each (under construction).

"100 percent capacity of the project is tied up through Power Purchase Agreement with Bihar Power Discoms," NTPC said.

At 10:15 hours IST, NTPC scrip was quoting at Rs 146.60, up Rs 2.95, or 2.05 percent and Power Grid Corporation of India was up 3.58 percent at Rs 192.15 on the BSE.

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