The slowdown in power demand is nowhere more evident than in the fourth quarter numbers of NTPC Ltd, the country’s largest electricity generator. Its generation declined 2.1% from a year ago. Plant load factors or capacity utilization in its coal-fired plants fell to 82.7% in the March quarter, a six percentage point fall from a year ago.

In an analyst call, the company highlighted that the fall in generation was due to lower demand from state electricity boards rather than shortage of coal supply, said a note from Emkay Global Financial Services Ltd. Note that this has happened despite NTPC having among the lowest tariffs in the country.

The company’s realizations also fell to 3.3 per unit in the March quarter compared with 3.5 a year ago. As a result, net sales fell by 8.2% from a year ago. Reported net profit fell 5%. If one-offs such as prior period incomes were stripped off, the fall in net profit would have been sharper. The good news is that the firm’s plant availability factor stood at 97%. NTPC needs to maintain plant availability above 83% to recover fixed costs.

Still, return on equity (RoE) for the company continues to be muted, not altogether a surprise given that the new Central Electricity Regulatory Commission norms calculate incentives based on plant utilization as compared with plant availability earlier. For the full fiscal year, NTPC’s consolidated RoE stood at 10.1%, down by 3.4 percentage points.

At least, this problem will be partially solved in the current fiscal year owing to the company’s debenture issue earlier this year. This issue will increase NTPC’s leverage and reduce its equity base, thus improving its RoE by up to 1.2 percentage points this fiscal year.

But that improvement has already been priced into the stock since the announcement was made about three months ago. NTPC shares have lost more than 13% since the highs of early March underperforming even the S&P BSE Power index. But note that the upcoming sale of government shares in the company is also responsible for the bearish mood.

For share prices to improve, earnings have to go up.

That is a factor not only of power demand but also the company’s promptness in bringing new generation capacity online. NTPC plans to add some 2,500 megawatts (MW) of capacity in each of the next two years, not counting its solar capacity plans of 10,000MW over the next five years. Given the company’s track record over the past couple of years, these targets appear ambitious.

The writer does not own shares in the above-mentioned companies.