Fitch Ratings today says that NTPC (BBB-/Stable), India's largest thermal power generator, would be the most hurt among the country's rated state-linked electricity utilities by the Indian electricity market regulator's final tariff order for the upcoming five-year regulatory period from April 2014 to March 2019.
There is limited impact on the other two rated power utilities - NHPC and Power Grid Corporation of India (PGCIL), which are both rated at 'BBB-' with stable outlooks.
Fitch estimates that the new tariff order by the Central Electricity Regulatory Commission (CERC) would reduce NTPC's pre-tax return on equity by around 350 bp. As a result, Fitch will trim its estimates for the company's EBITDA and profit after tax (PAT) from the financial year ending March 2015 (FY15) onwards by around 8%-11%.
NTPC's net leverage was expected to increase over the next few years due to its large capex programme. The weaker returns arising from the tariff order means NTPC's net leverage would be higher than previously expected. While this will not have an impact on NTPC's current 'BBB-' ratings, which are constrained by India's ratings of 'BBB-' with stable outlook, it will however reduce the rating headroom of its unconstrained standalone rating of 'BBB'.
Fitch expects that the profitability of NHPC and PGCIL to fall only by 2%-4% from FY15. As such, their forecast credit metrics will remain largely unchanged from the agency's previous expectations. NHPC and PGCIL would remain relatively immune to the change in the tax used to calculate pre-tax return on equity as they use the MAT rate. NHPC's incentives would still continue to be linked to normative plant availability factor, although the CERC has raised the factor for three out of NHPC's 14 plants. PGCIL's incentives are linked to the transmission system availability factor, which has been increased to 98.5% (from the earlier 98%) for alternating-current systems and 96% (95% previously) for high-voltage direct-current systems.
Shares of the company declined Rs 0.6, or 0.52%, to trade at Rs 114.90. The total volume of shares traded was 106,378 at the BSE (10.02 a.m., Friday).
