NTPC Slumps Most in 6 Years After Proposed Changes to Incentives

NTPC Ltd., India’s biggest electricity generator, tumbled the most in almost six years after the country’s electricity regulator proposed changes to production incentives that may hurt the utility’s earnings.

The shares plunged as much as 11.7 percent to 135.50 rupees, the biggest decline since Jan. 21, 2008, and traded at 137.20 rupees as of 11:16 a.m. in Mumbai. The utility is the biggest loser in the benchmark S&P BSE Sensex and MSCI Asia Pacific Index.

The Central Electricity Regulatory Commission has proposed a change in the way power plants receive incentives for electricity, according to Centrum Broking Pvt. analyst Sachin Mehta. At present, state-owned utilities charge customers, which have signed long-term purchase agreements, an incentive for their readiness to produce power at above 85 percent of their installed capacity, irrespective of how much power is bought. The regulator has suggested changing the method to payments based on actual offtake.

“The proposed regulations are negative, but the stock has over reacted,” Mumbai-based Mehta said by phone today. “I am hopeful that the regulator will accommodate some of NTPC’s concerns.”

The regulations, if implemented, would impact NTPC’s earnings per share in the year ending March 2015 by as much as 14 percent and as much 8 percent for Power Grid Corp. of India, analysts Amit Golchha and Anujay Jain of Emkay Global Financial Services Ltd. wrote in a note today. NTPC’s return on investments will slump by 6.2 percentage points to 17.2 percent, according to the note.

Power Grid

Power Grid, the biggest distributor, dropped as much as 3.9 percent, and National Hydroelectric Power Corp. fell 3 percent.

The final regulations are scheduled to come into effect from April 1, 2014, for a period of five years, according to CERC’s website.

NTPC is studying the regulator’s draft and will comment on the impact after a detailed assessment, Deepna Mehta, a spokeswoman for the utility, said in an e-mailed statement.

NTPC’s decline pulled the 20-member S&P BSE Power index down 4.5 percent, ending an eight-day winning streak. The Sensex fell as much as 0.5 percent.

Before it's here, it's on the Bloomberg Terminal.