A steep fall in production can spell trouble for a manufacturing company, but it was not so for NTPC Ltd. Electricity generation dropped 13% last quarter. Yet, adjusted profit grew by an impressive 35% to ₹2,953 crore.
The growth in earnings can be explained by its regulated business model. Under this, NTPC is assured to earn a minimum return on equity. Even if the customer reduces electricity offtake, it is allowed to recover (some) costs, provided its plants are production-ready.
The clause has come in handy with plant outages reducing last quarter. This lowered fixed-cost under-recoveries, which had dogged the company in FY19. Further, availability of the power plants improved, helping it receive better incentives. Power plant availability improved about three percentage points from the year-ago period to 88% last quarter.
