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Spotlight | October 2013

NTPC-Powering ahead

NTPC has been largely unaffected by the issues in power sector and has been adding capacity despite its peers struggling with various issues.

The Indian power sector has been facing various issues pertaining to land clearance, environment issues, etc. in the past few years. However, National Thermal Power Corporation (NTPC), the country's largest power generator, is not too worried about these ups and downs. In fact, they are on a capacity addition spree, and have added capacity despite its peers struggling with various issues. Being a government enterprise, NTPC has been privileged to get advance clearance and fuel assurance, which has been the biggest hurdle for most of the private players. However, it was an irony that NTPC failed to gain confidence in market as its shares remained low in the range of Rs 140-145 despite being a top company to add the highest capacity in the current financial year. Nevertheless, the fundamentals are strong as presented by the company management, during their recent visit to Mumbai.

According to the top officials of the company, NTPC has a capital expenditure (capex) plan of Rs 20,200 crore for FY2013-14 and is planning to bid aggressively for the upcoming ultra mega power projects (UMPPs). The state-run utility, which has a cash reserve of about Rs 19,000 crore, is looking for acquiring value-oriented power projects.

In the backdrop of poor economic conditions, many private players have put their projects on sale to offload their loan burden and strengthen their book values. The power sector has been weighed down over the past few years by two major concerns: inadequate coal availability and poor financial health of state distribution utilities. Inadequate fuel supply by the domestic suppliers has forced power producers to rely on imported fuel. It has also been observed that, in many cases, companies have not been able to pass on these higher costs, thus rendering power generation unviable. But the case with NTPC is not like it. The company has already signed long-term PPAs for power supply.

However, the company is concerned about its poor valuation at stock exchanges despite having strong fundamentals. NTPC's Chairman and Managing Director Arup Roy Choudhury is busy reaching out to investors and convincing them. 'We are the company that is supplying power at the lowest cost at Rs 2.50 to Rs 2.95 per unit. Our plants are running at the highest possible plant load factor (PLF),' said Choudhury.

Fuel supply assurance
Getting fuel supply assurance could be a challenging problem for private players, but for NTPC it has not been a major issue. NTPC even has other clearances and PPAs at place. Even the company's sourcing from Coal India (CIL) has been largely uninterrupted and their dependence on costlier imported coal is limited. NTPC plans to tide over this gap through long-term fuel supply agreements (FSAs) with existing suppliers as well as through coal production from the ten coal blocks allocated by the government.

'We have planned to import 60 mt of coal and we are not factoring in more than 145 mt from CIL,'said AK Singhal, Director Finance. The company has tied up 178 mt more for FY14. Apart from this, NTPC is also developing six coal blocks with an estimated coal reserve of three billion tonne.

Captive coal mines that are expected to start production over the coming years would add to the company's fuel security. NTPC is undertaking development of six captive coal mines with a peak capacity of 53 mtpa. NTPC has also been recently allocated four new coal blocks with estimated capacity of 45 mtpa. This should help company meet its fuel requirement for its expansion plans.

Long-term PPAs
As per the company's claim, most of its generated units are sold under long-term power purchase agreements at regulated tariffs. PPAs have been signed for all operating and under construction projects. 'Policy of securing PPAs for all new plants before approval is given for investment, under secured off take,' said Singhal. Entire power output of NTPC's power stations has been contracted under PPAs and it does not sell any power in the merchant market, so they are immune to volatile merchant power prices. Going ahead, the new regulations are expected to be balanced considering negative sentiments for new investments.

The new regulations have allowed passing fuel costs to customers. This means if there is an increase in cost of generation due to imported coal, the additional cost will be passed on and it may not impact company's margins. Full recovery of the capacity charge is allowed if plant availability is at least 85 per cent. The company has reported that its capacity about 5,000 MW has been remained idle due to poor off take. However, the company claims that even if the buyer does not purchase the contracted quantity of power, it recovers a good part of its costs.

Operational benefits
NTPC is on a strong footing, operationally and financially. Despite many SEBs being in financial trouble, the company has no trouble regarding payments. NTPC has the first right on the receivables of the SEBs it supplies to. The company's power generation has been increasing, though marginally, over the past few years. In 2012-13, the company's generation rose 4.5 per cent to 231 BU. NTPC's plant load factor (capacity utilisation) at 83 per cent in 2012-13 is ahead of the all-India average of 70 per cent. Even the demand for power in the country is expected to grow strongly in the coming years. Financial restructuring of the SEBs, if successfully carried out, should translate into better demand. NTPC with its size and expansion plans will benefit.

NTPC achieved highest ever capacity addition of 4,170 MW, including 1,000 MW through its joint venture projects. With 18.4 per cent of India's total installed capacity, NTPC accounted for 27.4 per cent of India's total power generation during 2012-13 underlining its consistently high operational efficiency. The company's sale offer of additional 9.5 per cent government equity stake during FY13 proved an overwhelming success in an otherwise depressed domestic equity market. Following this disinvestment, the government shareholding in NTPC now stands at 75 per cent.

Future plan NTPC's capital expenditure stood at Rs 19,926 crore last year and has decided to invest Rs 20,200 crore in FY14. Going ahead, the company plans to add about 15,000 MW by the end of 12th Five Year Plan.

Choudhury said the Cabinet Committee on Investment (CCI) has already restored coal linkage to the company's proposed 1,980-MW Jharkhand power plant. The government has withdrawn the de-allocation of NTPC coal blocks in Jharkhand. Recently, Prime Minister Manmohan Singh dedicated the NTPC's Sipat thermal power project in Chhattisgarh to the nation. The 2,980-MW Sipat project has three units of 660 MW in stage I, and 2 units of 500 MW in stage II, which are already operational.

Analysts' observation
The sector analysts has observed that NTPC's generation has booked a de-growth of 5.3 per cent YoY to Rs 57 billion, on account of non-availability of imported coal and lower domestic coal availability for plants commissioned post 2009, leading to a 5.3 per cent YoY volume growth for Q1FY14. Fuel cost came down by 5.6 per cent YoY as lower imported coal was blended. 'The company will have a challenging task further in the event of aggressive capacity addition plans on account of shortage of coal supplies. We have toned down our target price to factor in lower ROEs for a newer plant till any clarity on coal emerges,' said Rupa Shah, Senior Analyst of Prabhudas Lilladhar.

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