NTPC Ltd’s double-digit growth in revenue and profit for the March quarter (Q4) may have been impressive but investors were not enthused. Its shares gained after the Q4 results announcement on Monday but declined on Tuesday.

The core of the company’s woes lies in fuel supply constraints. Limited availability of coal at some of its plants is crimping plant availability, thereby leading to an under-recovery of fixed costs. Under-recovery of fixed costs during fiscal year 2018 (FY18) stood at Rs1,433 crore, of which Rs800 crore was due to non-availability of coal. Other contributors include lack of clearance to operate a plant and closure of a plant due to an accident.

The company is working with Coal India Ltd and Indian Railways to find a resolution, but it can be a time-consuming process. According to the management, fuel situation at two plants has improved but not entirely resolved.

The cost under-recovery and the subsequent financial impact on NTPC’s performance are weighing on its stock. Consolidated profit for FY18 is down 2%.

Even the March quarter profits would have risen in single digits, if one adjusts for one-time items, points out Motilal Oswal Securities Ltd. “Profit after tax is adjusted for Rs430 crore under-recovery of fixed charge and many prior-period items," the brokerage firm said in a note. “Calculated core adj. profit grew ~6% YoY."

The subdued performance on its earnings front has been a dampener despite the company seeing robust capacity additions. The stock has trailed the benchmark index over the last year. At the group level, NTPC added 4,098 megawatts (MW) of commercial capacity in FY18. It plans to add almost 5,000MW in FY19 and a similar amount of capacity next year, which should help maintain growth trajectory over the long run due to the regulated nature of the business—the firm earns fixed return on equity (RoE).

But as underperformance of its shares show, not everybody is subscribing to this. An analyst with a domestic broking firm pointed out that one concern is the challenge on the fuel availability front. Secondly, there is a risk of higher interest rates pushing up project costs. Thirdly, there is an impending change in the regulations on regulated returns.

The Central Electricity Regulatory Commission has published its draft consultation paper for regulated tariffs for FY20-FY24. According to Jefferies India Pvt. Ltd, the paper suggests a three-part tariff of fixed charges to recover the assured returns against the existing two-part tariff.

Most analysts do not expect the regulator to change the regulated RoE for existing plants but fear RoE revision for new plants. While nothing is close to finalization, the new regulations are being seen as potential risk.

Overall, while capacity additions and the regulatory business model places NTPC on a firm footing, cost under-recovery and potential regulatory changes pose challenges in the near term.