NTPC’s fourth quarter fuels its stock, but how renewable energy plans are structured is key

Shares of NTPC Ltd rose around 3% in the first trades Monday on the National Stock Exchange. This is when the larger Nifty 50 index has fallen.

Not without reason. The company’s fourth quarter results reported on Saturday are strong, helped by recovering demand for electricity and rising other income. In fact, NTPC’s results stand out, analysts say. “NTPC posted its best quarterly performance of all time in 4QFY21 with 13% year-over-year growth in adjusted profit after tax (PAT) to Rs3830 crore leading to an all-time highest adjusted PAT of Rs14220 crore ( + 17% year-on-year). year) in fiscal year 2021, ”analysts from Kotak Institutional Equities said. In addition, as of March 2021, the total claims amounted to Rs 12,800 crore, which was less than Rs 14,200 crore a year ago.

It is also interesting to note that NTPC has given an ambitious target on the renewable energy (RE) capacity additions front. By 2032, NTPC seeks to increase its renewable energy operational capacity from 1.3 GW (Gigawatt) for fiscal 21 to 60 GW by 2032. This is double the capacity expansion of 30 GW by 2032 than NTPC predicted earlier.

This is certainly encouraging insofar as it could help the company improve its ESG scores (environment, social and governance). In addition, it would also help NTPC’s future profit growth and help diversify its revenue streams. Even so, investors would do well to monitor the return profile of RE capabilities. “The company reiterates that the competitive advantage in the RE space translates into a lower cost of borrowing. With a borrowing cost of around 6.5%, the IRR of equity for the solar arm will be in strong competition with other CPSEs such as Coal India Ltd, for example, ”noted a report from Antique Stock. Broking Ltd June 21. CPSE is the abbreviation for Central Public Sector Enterprises. .

As such, the road ahead is not easy. As Kotak analysts point out, “As lower borrowing costs weigh in favor of NTPC, increased competition in renewable energy, pushing solar offerings to historically low levels, keeps us alert to the profile of return of the upcoming capacity addition. “

Meanwhile, NTPC declared a final dividend of Rs 3.15 per share, bringing the total dividend for fiscal year 21 to Rs 6.15 per share. “With the improvement of regulated stocks, there is a need to achieve a dividend yield of over 5%,” said Antique.

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