Subdued electricity demand continues to haunt NTPC Ltd. Utilization levels at coal-fired power plants fell 3.7 percentage points from a year ago to 78.6% in January. Power generation dropped 1.7%. Gas-based plants fared even worse. "Notably, PLF (plant load factor) of its gas-fired capacity dropped to an all-time low of 13.3% vs. 25.5% in Dec-2015 and 29.3% in Jan-2015 on account of slackness in demand from Discoms (distribution companies) plus the variable cost of gas-fired electricity not ranking high in the merit order dispatch," Nomura Research said in a note. PLF indicates utilization levels.
The fall comes on the back of the 2.5 percentage points decline in thermal PLF last quarter. With the January reading, utilization levels in the first 10 months of the current fiscal year stood at 78% against 79.9% a year ago, points out Nomura. Only five of the 16 coal-fired plants ran at a PLF of more than 85%, a level beyond which the company will earn incentives.
To be sure, NTPC continues to do better than the sector as a whole, which is operating at a much lower PLF of 63%. But that provides no comfort as falling volume is crimping the company's revenue and profit.
Last quarter, as volume dropped 1%, NTPC's adjusted revenue and profit fell in the range of 6-8%. The performance trailed Street estimates, resulting in earnings downgrades. "We have reduced our EPS (earnings per share) estimates by 4% for FY16 and 3% in FY17E to factor in lower other income, lower PLF," Elara Securities said in a note.
The stock fell sharply after the results announcement. At 10 times one-year forward EPS estimates, valuations are not demanding. Though the stock recovered a bit on Monday, subdued demand can remain an overhang.
Rating agency India Ratings and Research Pvt. Ltd estimates demand to remain muted in the next fiscal year also, weighed down by muted offtake from industries, which consume 40% of the electricity in India. While that warrants caution, any notable progress on the financial revival plan of state electricity boards will be a positive for NTPC as it remains the largest producer of electricity in India.