Published on 9/12/2019 2:55:30 PM | Source: Live Mint

Motilal Oswal recommends `buy’ on NTPC, sees 44% upside in stock

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New Delhi: Motilal Oswal Financial Services (MOFS) has recommended a ‘buy’ on shares of state-owned NTPC Ltd as it expects higher savings for the company due to Central Electricity Regulatory Commission’s (CERC) order.

The financial service firm sees a 44% upside in the stock and has set a target price of ₹164.

At 1.50 pm, shares of NTPC were at ₹112.25, down 0.27% from previous close.

The Security Constrained Economic Dispatch (SCED) scheme — planned to optimize sourcing from thermal inter-state generating stations (whose full capacity is tied up and regulated with CERC) — will help NTPC reap benefits of around ₹400 crore, the brokerage firm said.

“The results of the SCED scheme have been encouraging. Total savings of around ₹310 crore were achieved in the first three months of FY20. According to CERC, 50% of these savings would be shared with generators. NTPC’s share stands at ₹100 crore for first three months of FY20, implying an annual benefit of ₹400 crore for the company," MOFS said in its report.

Government-owned Power System Operation Corporation Limited (POSOCO) implemented the SCED mechanism on a pilot basis from 1st April this year. Under SCED, a separate account was created for payments to/from generators for increment/decrement in their schedule. On implementation, the scheme led to savings of ₹310 crore in the cost of power purchase, around 1.5% reduction in generation cost, over Apr-Jun’19.

The CERC had directed that benefits within the SCED pool should be shared equally between the participating generators and power distribution companies (discoms) after compensation for part load operations of generators.

Under SCED, power is dispatched in the order of the lowest cost (variable cost) of generation. With better utilization of lower cost plants, generation costs within the system were reduced.