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NTPC: Analyst meet extracts
Aug 25, 2005

In its first-ever direct interaction with the analysts, the NTPC management outlined the company’s status as the largest power generator in the country, its strategies for growth and the challenges ahead. Here are the extracts from the meet. Extracts from the meet

Generation capacity
  No. of plants Capacity (MW)
NTPC owned
Coal 13 19,480
Gas 7 3,955
Total 20 23,435
Owned by JVs
Coal 3 314
Grand Total 23 23,749
Largest in India:  NTPC is the largest power generating company in India with a nationwide presence and an installed capacity of 23,749 MW, which is around 20% of India's total installed capacity. Around 82% of this capacity is coal-based with the remaining being based on gas fuels. The company’s volume generation and sales have grown at compounded rates of 5.1% and 5.2% during the period FY01 and FY05. Notably, since 1982, the company has added over 28% of the incremental generation capacity in the country. NTPC has around 23,400 employees on its rolls.

Ambitious expansion plans:  NTPC added 4,000 MW of generation capacity during FY01 and FY05, out of which 2,000 MW came in during the year FY05. Going forward, the management has indicated an ambitious target of having 30,000 MW by the end of FY07 and 46,000 MW by the end of FY12. This indicates respective CAGR of 10% and 9% over the present capacity of 23,749 MW, which we believe is highly improbable.

Efficiency gains:  At 87.5%, NTPC has one of the best PLF rates in the country while the national average lies at a low of 74.8%. Due to such a high PLF, the company’s share in the actual power generated in FY05 stood at 28%. The efficiency has also helped the company in producing power at a low cost of Rs 1.57 per unit, which is very competitive.

Strong financial position:  With a debt to equity ratio of just 0.4:1 as at the end of FY05, NTPC is in a strong position to power its capacity expansion plans in the future. The company generated a net operating cash of over Rs 50 bn during FY05, on the back of 100% realisation of the amount billed to customers (mainly the state electricity boards or SEBs). Even in the future, the strong cash flows and redemption of the large investments (Rs 207 bn as at the end of FY05) are likely to help the company finance its growth.

Strategies for growth

    Aggressive addition plans
    (MW) 10th Plan 11th Plan
    Present plan 9,160 17,000
    Added 3,500 -
    Under construction 4,210 5,260
    Under evaluation 1,450 1,150
    Other projects - 10,590
    Total 9,160 17,000
    Earlier plan 9,160 11,558
  1. Maintaining sector leadership:  NTPC’s management has outlined an aggressive generation capacity addition plan spread over a period of next seven years, i.e. 2012. The company plans to increase its capacity to 30,000 MW by the end of FY07 and to 46,000 MW by the end of FY12. Segregating on the basis of five-year plans, while 9,160 MW is likely to be added in the tenth plan (2002-07), the company plans to add another 17,000 MW in the eleventh plan (2007-12) (see table below).

  2. Enhancing fuel security:  In order to meet the above stated growth targets, NTPC plans to enter coal mining in a more aggressive way, participate in the LNG value chain and make progess in the hydro-capacity addition plans. The management has indicated that additional requirements of coal are being met through imports. The company has already commenced import of 2.1 MT of coal through MMTC and is in earlier stages of tying up import of another 1.9 MT through STC. The company is also working on a coal block, Pakri Barwadih, as a medium term measure to ensure regular supplies. As a long-term measure, NTPC has applied for additional 15 coal mining blocks.

    With regard to its LNG plans, the company has outlined augmenting existing gas supplies through tying up 12.5 mmscmd of gas from the Panna-Mukta-Tapti gas fields, as against the earlier levels of 9.1 mmscmd. As a long-term measure, NTPC is participating in various elements of the LNG value chain, like gas exploration and production, participation in gas liquefication and regassification terminal and participation in LNG shipping. The management has also indicated that the agreement for supply of gas to its power stations at Kawas II and Gandhar II (1,300 MW each) will be signed shortly. NTPC’s gas stations have traditionally been running at low PLFs of 65%-68%. Ensured supplies will go a way in boosting these PLFs, thus improving profitability of the company.

  3. Diversifying fuel mix:  The fuel mix of NTPC is highly skewed towards coal (83%), as can be seen from the left hand side graph below. In order to reduce dependence on coal in the future so as to minimise supply constraints, NTPC is planning to set up hydro power plants. As per management estimated, the share of hydro will be 11% by FY12, with the share of coal inputs declining to 71% (including the JVs). Out of the 4,400 MW of total capacity in hydropower, which the company is planning to set up in the future, around 1,920 MW are already under development.

  4. Exploiting new business opportunities:  Apart from the stated plans and opportunity in the power generation business, NTPC is also scouting for other opportunities in the sector, some of them being:

    • Forward and backward integration across energy chain;

    • Power trading and distribution;

    • Exploring options in setting up of merchant plants;

    • Exploring business from overseas operations by providing consultancy services.

Challenges to growth

Availability of fuel at competitive prices:  The management has cited concern on the delay in development of some linked coalmines that is causing problems in coal supplies to some its plants. The fact that most of NTPC’s coal plants run at high PLFs (coal based PLF was around 87.5% in FY05, up from 84.4% in FY04) has led to shortage of supplies at some plants. The company has, as an immediate measure, tied up imports of 4 MT during FY06 and, for long-term availability, has applied for additional 15 coal blocks.

In case of availability of gas, as had been reported recently, NTPC has been facing delays in signing sale and purchase agreement with Reliance Industries for supply to its Kawas and Gandhar plants. NTPC expects gas supply from Reliance from December 2008 onwards. NTPC will pay a price of US$ 2.97 per million British Thermal Unit (mbtu) for gas supplied by Reliance, almost equal to the current APM price of US$ 3 per mbtu. Apart from the abovementioned plants, NTPC’s Kayamkulam plant in Kerala has been operating below its capacity of 350 MW due to shortages in gas supply. The company had recently agreed to pay US$ 4.1 per mbtu to GAIL for supply of Iranian LNG to this project.

What to expect?

NTPC's net asset value
  Value (Rs m) Per share (Rs)
Asset Value (a)* 831,215 101
Investments (b) 207,977 25
Cash (c)** 89,852 11
Debt (d) 170,878 21
NAV (a+b+c-d) 958,166 116
* Replacement value has been assumed at Rs 35 m per MW.
NTPC owns 23,749 MW of generation capacity.
** Cash figure is as at the end of FY04, and includes NTPC's
public deposit account with the Government of India
and the interest accrued thereon.
At the current price of Rs 97, the stock is trading at a price to earnings multiple of 15.3 times its annualised 1QFY06 earnings. We have arrived at a price of Rs 116 per share based on calculation of the net value of NTPC’s assets. This figure is however based on the company’s assets as at the end of FY05, except cash, which is as at the end of FY04. Since the return on equity is fixed at 14% for the power business, the only way NTPC can grow its profitability in the future is by ramping up generation capacities, both in the thermal and hydro segments.

As India’s largest power company and the main vehicle for increase in the country’s power generation capacity over the next few years, we expect NTPC to maintain its leadership position in the power sector in times to come.

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