Draft Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019

Draft tariff regulations (2019-24) are positive for regulated utilities as base RoE remains unchanged at 15.5% (our expectation: cut to 14%). Key overhang of cut in RoE is behind company – a major positive. Negative impact of decapitalisation of assets beyond useful life (>25 years) from ‘gross to net basis’ (-1.9% in core RoE) would be offset by positive impact of GCV relief (+1.8% in core RoE). With key benchmarks unchanged, tightening of certain norms (working capital, availability from annual to quarter) would be balanced by relaxation in operating norms. We upgrade NTPC to BUY with revised TP of Rs 172 with regulatory risk overdone and attractive valuations (P/B 1.1x FY20e).

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