NTPC’s Q4 powers its stock, but how renewable plans shape up is key

Shares of NTPC Ltd rose around 3% in early deals on Monday on the National Stock Exchange. This when the broader Nifty 50 index declined.

Not without reason. The company’s fourth quarter results announced on Saturday are strong, helped by recovery in power demand and higher other income. In fact, NTPC’s results stand out, point out analysts. “NTPC reported its best ever quarterly performance in 4QFY21 with 13% year-on-year growth in adjusted profit after tax (PAT) to Rs3830 crore leading to an all-time high adjusted PAT of Rs14220 crore (+17% year-on-year) in FY2021,” said analysts from Kotak Institutional Equities. Further, as of March 2021, total receivables stood at Rs12,800 crore, lower than Rs14,200 crore in the year-ago period.

It is also interesting that NTPC has given an ambitious target on the renewable energy (RE) capacity additions front. By 2032, NTPC is looking to increase its 1.3GW (Gigawatt) of FY21 operational renewable energy capacity to 60GW by 2032. That’s double of the 30GW capacity expansion by 2032 NTPC was planning earlier.

To be sure, this is encouraging given that it could help the company improve its ESG (environmental, social and governance) scores. Further, it would also add to NTPC’s earnings growth in future and help diversify its revenue stream. Even so, investors would do well to watch the return profile of the RE capacities. “The company reiterates that the competitive edge in RE space comes at a lower borrowing cost. At about 6.5% borrowing cost, the equity IRR for solar arm will compete strongly with other CPSEs such as Coal India Ltd, for instance,” pointed out a report by Antique Stock Broking Ltd on 21 June. CPSEs is short for Central Public Sector Enterprises.

As such, the road ahead is not a smooth one. As Kotak analysts point out, “While lower cost of borrowing weighs in favor of NTPC, increased competition in the renewable space pushing solar bids to an all-time low keeps us watchful of the return profile of upcoming capacity addition.”

Meanwhile, NTPC has declared a final dividend of Rs3.15 per share, taking the total dividend for FY21 to Rs6.15 apiece. “With improving regulated equity, there is a case for a 5%+ dividend yield,” said Antique.

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