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Mr. G. Sundara Vathanan +91-80-2211 7140 sundara.vathanan@careratings.com
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CARE EQUITY RESEARCH OFFERS
Independent Research of equities on fundamentals or valuations or both
IPO Grading
White Label Research
Valuation of companies for Institutional Investors, Asset Managers and Corporates
Sector Write-ups for Offer Documents of securities
NTPC LIMITED
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EQUIGRADE
EQUIGRADE – Analytical Power for Investment Decisions
NTPC Limited Electric Utilities
Strong Fundamentals; Considerable Upside Potential CMP : Rs. 183.5 / CIV : Rs. 246 1
Sensex: 19,291
CARE Equity Research assigns 5/5 on fundamental grade to NTPC
CARE Equity Research assigns fundamental grade of 5/5 to NTPC. This
indicates ‘Strong Fundamentals’. The grade draws strength from NTPC’s
leadership position in India’s power generation sector, commendable
execution track record, revenue security through power purchase
agreements for existing as well as capacities planned over more than
coming two decades and fuel security through long term coal supply
agreements. Secured profitability of the company, being an efficient
player in the industry with regulated returns, further supports our grading
strength. Foray in forward and backward links like coal mining, power
trading and equipment manufacturing to some extent adds to the
strength of the company. ‘Maharatna’ status gives the highly experienced
board significant autonomy in its business decision-making. Low interest
costs, reasonable gearing levels, healthy cash balance, 100 per cent
realisation of power bills and healthy dividend payment track record
indicates strong financial position. With plans to double the power
generating capacity by FY17, NTPC would continue to ‘feed the power
hungry India’.
However, CARE Equity Research views the timely completion of
expansion projects, timely and continuous availability of fuel and timely
availability of equipment as key moniterable for the company.
Furthermore, minority stakeholders do not have significant say in
company’s affairs.
Valuation
CARE Research assigns valuation grade of 5/5 to NTPC based on the
Current Intrinsic Value (CIV) of Rs. 246 as against Current Market Price
(CMP) of 183.5. This indicates ‘Considerable Upside Potential’. CARE
Equity Research has used Discounted Cash Flow (DCF) to value the
power related business and EV per tonne for valuing its coal assets.
1 2 3 4 5
Fundamentals
Valuation
Market Capitalisation Rs. Bn. 1,509
Enterprise Value Rs. Bn. 1,790
52 Week High / Low Rs. 219 / 170
Diluted EPS (consolidated - FY10) Rs. 10.7
P/E (FY10) times 17.1
Beta times 0.7
Average Daily Volumes* Bn. 0.6
* BSE + NSE for last 52 weeks
Returns 1M 3M 6M I Yr
Absolute 5% -2% -9% -10%
Rel. to Sensex -1% -3% -3% -19%
Revati Kasture Head - Research +91-22-6754 3465
Dhimant Kothari Senior Manager +91-22-6754 3479
Hitesh Avachat Analyst +91-22-6754 3447
1 CMP: Current market Price; CIV; Current Intrinsic Value
ANALYTICAL CONTACTS
CARE EQUIGRADE GRID (CEG)
CEG is explained on the last page
KEY EQUISTATS
STOCK PERFORMANCE
SHARE HOLDING PATTERN
Financial Information Snapshot
(Rs. Billion) FY10 FY11 P FY12 P FY13 P
Operating Income 512 591 701 827
EBITDA 160 171 210 252
PAT (After minority interest) 88 91 105 117
Fully Diluted EPS* (Rs.) 10.7 11.1 12.7 14.1
Dividend Per Share (Rs.) 3.8 4.0 4.3 4.5
P/E (times) 17.1 16.5 14.4 12.9
EV/EBITDA (times) 11.2 10.4 8.5 7.1
* Calculated on Current Face Value of Rs. 10/- per share
29th
April2011
NTPC LIMITED
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Power: indispensable to power India growth story; execution a key
In a fast growing economy like India, there is an indispensible need for more and more power. Furthermore, with
current situation of power deficit, opportunity in the sector remains humungous. The total energy deficit and peak
deficit in FY10 stood at approximately 10.1 per cent and 12.7 per cent respectively. In the scenario of GDP
growing at 8 per cent, which according to CARE Equity Research seems realistic, the energy demand is likely to
increase from around 110 Giga Watts (GW) in FY11E to 160 GW in FY17 and 220 GW in FY22. This translates
into a compounded annual growth rate (CAGR) of more than 6 per cent through the above period. Accordingly,
from the current capacity of around 162 GW, the power generation capacity need to grow to around 230 GW by
FY17 and 310 GW by FY22 assuming similar PLF. The timely execution of such huge quantum of expansions
would remain a key for the sector, given the challenges relating to tying up of fuel / feedstock, acquisition of land,
timely delivery of capital equipments, achieving financial closure on time and at feasible terms, disposal of waste
(like ash in case of coal fuelled plant), etc.
NTPC has big plans to en-cash upon this opportunity
NTPC, with current capacity standing at around 34 GW or around 21 per cent of capacities in India that generates
close to 30 per cent of the power generated in India, plans to double its capacity by FY17 and further to 128 GW
by FY32 under its Long Term Corporate Plan. Accordingly, NTPC would account for more than 25 per cent of
power capacities in India by then. Thus, NTPC would continue to ‘feed the power hungry India’. Though NTPC
did not manage to win any of the four Ultra Mega Power Projects (UMPPs) announced by the Government
recently for cumulative capacity of 16 GW, CARE Equity Research feels that it is not of a major concern, as the
company has much bigger expansion plans chalked out for it. CARE Equity Research expects NTPC to surpass 50
GW of capacity by the end of FY15.
Details of UMPPs
Source: CARE Equity Research
FUNDAMENTAL GRADE Strong Fundamentals 5/5
UMPP State Lowest Bidder Bid Price
(Rs. / Kw h)
NTPC's Bid
(Rs. / Kw h)
Capacity
(MW)
Sasan Madhya Pradesh Reliance Power 1.19 2.12 3,960
Krishnapatanam Andhra Pradesh Reliance Power 2.33 n.a.1
3,960
Tilaiya Jharkhand Reliance Power 1.77 2.39 3,960
Mundra Gujarat Tata Power 2.26 n.a.1
4,000
1 NTPC did not submit any bid for these UMPPs
NTPC LIMITED
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EQUIGRADE
NTPC’s projects under construction (Alphabetical order)
(a) Successfully synchronized on 07th
March 2011
(b) Successfully synchronized on 18th
February 2011
(1) Joint Venture with Haryana Power Generation Corporation Ltd. and Indraprastha Power Generation Co. Ltd.
(2) Joint Venture with Bihar State Electric Board
(3) Joint Venture with Railways
(4) Joint Venture with Tamil Nadu Electricity Board
Source: Company, CARE Equity Research
NTPC’ execution track record speaks for itself
NTPC’s capacity increased from 200 mega watts (MW) in FY82 or merely 0.6 per cent of the total installed
capacities in India then to 10 GW in FY91 or 15 per cent of the total installed capacities in India and further to 34
GW in FY 11 or 21 per cent of the total installed capacities in India now. Thus, NTPC’s track record speaks for
itself, highlighting its commendable ability to execute power projects. Though such capacity additions would have
faced various challenges, the capacity additions have been at a much faster rate than the industry. In the last three
years, which were dotted by the global economic crisis and subsequent recovery, India saw capacity additions of 19
GW. Of this, 7 GW or close to 37 per cent of the capacities were added by NTPC alone.
Project Fuel Capacity
(MW)
Cost (Rs.
Bn.)
Barh I Bihar Coal 1,980 105
Barh II Bihar Coal 1,320 70
Bongaigaon Assam Coal 750 33
Farakka VI (a) West Bengal Coal 500 26
Indira Gandhi STPP (1) Haryana Coal 1,000 53
Koldam - U1 Himachal Pradesh Hydel 800 37
Mauda I Maharashtra Coal 1,000 56
Muzaffarpur (2) Bihar Coal 390 20
Nabinagar (3) Bihar Coal 1,000 50
Rihand III Uttar Pradesh Coal 1,000 60
Simhadri II Andhra Pradesh Coal 1,000 49
Sipat – 1 (b) Chhattisgarh Coal 1,980 90
Tapovan Vishnugad Uttaranchal Hydel 520 27
Vallur I (4) Tamil Nadu Coal 1,500 76
Vindhyachal IV Madhya Pradesh Coal 1,000 57
Total 15,740 809
NTPC LIMITED
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EQUIGRADE
NTPC: Capacity addition track record
Source: Company, CARE Equity Research
Real-time project monitoring helps smooth project execution and removal of bottle-necks at a faster pace
NTPC has state-of-the art Project Monitoring Centre (PMC) comprising of IT-based real-time monitoring of
various new and on-going projects. The PMC, which forms part of management information system, is equipped
with high resolution remote controlled cameras and video conferencing facilities. The system at PMC captures and
reports more than 2,000 critical parameters of the project online and helps management take a much faster
decision, including that on the bottle-necks affecting the project. The access of PMC is made available to the
Ministry of Power, which renders complete visibility of the progress of the projects.
‘Maharatna’ status enhances the NTPC board’s autonomy
NTPC was awarded ‘Navratna’ status way back in 1997 that gave the Board of Directors autonomy to take
company’s capital expenditure of any quantum and investment decisions to some extent. The decision for equity
investment in joint ventures (JV) or special purpose vehicles (SPV) or for acquisition of stakes by the board
without any approvals was restricted to Rs. 1,000 crore per acquisition / investment. With the prestigious
‘Maharatna’ status accorded in 2010, the scope of autonomy was widened with the upper cap on investments
enhanced to Rs. 5,000 crore per acquisition / investment without any approvals. This would enable NTPC to
acquire coal mines / stake in coal mines and / or invest in power projects of much higher capacities with much
more strategic decision making flexibility. The board is also empowered to create and to wind up all below the
board level posts, which gives operational flexibility.
Power Purchase Agreements in place for 3 times the current capacity
Power is transacted in India largely through the long term power purchase agreements (PPAs). NTPC already has
PPAs in place for more than 100 GW. Thus, not only the off-take is secured for current capacity of 34 GW, but
also for capacities much beyond those planned till FY17. As mentioned, NTPC plans to double its capacity by
FY17. Thus, the revenue visibility is very high for the company.
0
50
100
150
200
FY82 FY91 FY11E
NTPC Rest of India
CAGR 6%
CAGR 19%G
W
NTPC LIMITED
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EQUIGRADE
NTPC: Power Purchase Agreements
Source: Company
Fuel security also appreciable
Tying up fuel is a big challenge in the Indian power generation industry. However, NTPC has secured its coal
requirements Long Term Model Coal Supply Agreement (CSA) with Coal India Limited (CIL), the largest coal
miner in India, and its subsidiaries for supply of coal to its various power stations for 20 years. The reliance on
coal sold through e-auction and imported coal is significantly low. The agreement for supply of imported coal is
also made with MMTC. This ensures fuel security and in turn revenue security for the company.
Furthermore, NTPC has also ventured into coal mining. It has already been allocated five coal blocks by the
Government. These blocks have total mineable reserves of close to 2 billion tones and the company expects to
have mining capacity of 65 - 70 million tonnes per annum (mtpa) by FY17. The output from the captive mines is
expected to meet close to one-fifth of NTPC’s coal requirement by the end of FY17 on higher capacities.
However, the timely development of coal blocks remain a key moniterable, as NTPC has been issued show-cause
notices in relation to delay in developing coal blocks. NTPC has appointed Thiess Minecs India Private Limited
as mine developer-cum-operator for Pakri Barwadih Coal Mining Project for a period of 27 years. The peak
production from this mine is expected to be 15 mtpa.
Besides, NTPC is also part of a JV christened International Coal Ventures Private Limited (ICVPL) that involves
other big companies like SAIL, Rashtriya Ispat Nigam Limited, Coal India Limited and NMDC for buying coal
mines abroad. NTPC holds 14.3 per cent stake in ICVPL.
Similarly, NTPC has formed two separate 50:50 JVs with Singareni Coalieries Company Limited (SCCL) and
Coal India Limited (CIL) christened NTPC SCCL Global Ventures Private Limited and CIL NTPC Urja Private
Limited (CNUPL) respectively to jointly acquire, develop and operate coal blocks in India and overseas. CNUPL
has been allotted two coal blocks – Brahmini and Chichro Patsimal with total mineable reserves of around 1
billion tonnes.
Description GW
For capacities already commissioned 33
For capacities under construction 16
For capacities under bidding 14
For New Projects 37
Total 100
NTPC LIMITED
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NTPC: Coal Blocks
# Estimates; *CNUPL JV
Source: CARE Equity Research
However, the dispute with Reliance Industries regarding gas supply at $ 2.53 per million metric british thermal
units (mmbtu) is not yet resolved.
Foray in forward and backward links adds to the strength of NTPC
Besides coal mining, NTPC’s foray in backward link of equipment manufacturing and forward link of power
trading adds to its strengths.
It has entered into two JVs, namely NTPC BHEL Power Projects Private Limited (50 per cent stake) with BHEL
and BF NTPC Energy Systems Limited (49 per cent stake) with Bharat Forge and has acquired 44.6 per cent stake
in Transformers and Electricals Kerala Limited. These investments relate to the business of manufacturing capital
equipments for power plants. The business of manufacturing power equipments is new for NTPC. Nevertheless,
NTPC’s rich domain knowledge of the power sector and experience of the JV partner would be advantageous.
Block State Mineable Reserves#
(mn tonnes)
Pakri-Barwadih Jharkhand 700
Talaipali Jharkhand 600
Kerandari Jharkhand 140
Chatti-Baritu Jharkhand 310
Dulanga Orissa 200
Brahmani* Orissa 1,000
Chichro-Patsimal* Orissa 160
Total 8 Blocks 3,110
NTPC LIMITED
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EQUIGRADE
NTPC: Investments relating to equipment manufacturing
Source: CERC
NTPC also has a 100 per cent subsidiary NTPC Vidyut Vyapar Nigam Limited (NVVN) engaged in the business
of power trading and 16.67 per cent stake in National Power Exchange Limited (NPEX). NVVN has been
designated as the Nodal Agency for the purchase of up to 1,000 MW of solar power under the National Solar
Mission. However, a major portion of power is sold in India through long term PPAs and small portion is
transacted through other modes, including power exchanges. Nevertheless, investment made in power trading and
power exchange is a good attempt to make NTPC a holistic player in the power industry.
Challenges inevitable for the company
CARE Equity Research acknowledges the capabilities of NTPC with respect to both project execution and plant
operations, given its large size, better negotiating power, historical track record, revenue visibility through PPAs
fuel security and experienced management. Nevertheless, the challenges are inevitable for the company. NTPC
may face challenges with respect to:
• Timely and continuous availability of fuel: Any situation of non-availability of feedstock or disruption in
supplies can affect the expansion plans or running operations of the company. To illustrate, NTPC’s gas
based power projects at Kawas and Gandhar are facing challenges of fuel supplies, as the dispute with
Reliance Industries regarding gas supply at $ 2.53 per million metric british thermal units (mmbtu) is not yet
resolved. Though NTPC has made an attempt for Liquefied Natural Gas (LNG) supplies from Nigeria, it has
not been successful yet.
• Timely availability of equipments: NTPC is largely dependent on BHEL, the only sub-critical component
manufacturer in India. There is shortage in the power equipment sector and the fate depends on the capital
expansion plans of BHEL, which are currently under-way. Nevertheless, imported equipments remain an
option, with NTPC importing super-critical equipments from Russian and Korean companies.
• Securing land and waste disposal: Securing of land and arranging for waste disposal is also very critical for the
company for timely execution of expansions and smooth operations of its plants. The company largely has
coal based power capacities, which leads to generation of ash. Though the company attempts to dispose the
Company Stake Objective
NTPC BHEL Power Projects
Private Limited 50.0%
To explore, secure and execute EPC contracts for power
plants and to engage in manufacturing and supply of
equipments for power plants
BF NTPC Energy Systems
Limited 49.0%
To manufacture castings, forgings, fittings and high Pressure
piping required for power and other industries, Balance of
Plant (BOP) equipment for the power sector etc.
Transformers and Electricals
Kerala Limited 44.6% For Manufacturing and repair of Transformers
NTPC LIMITED
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EQUIGRADE
same in environmental friendly manner, disposal of huge quantum remains a challenge. India has seen
instances of power projects facing opposition over concerns relating to environment or relocation of
population or adverse impact to local agriculture.
NTPC had planned to add 21 - 22 GW of capacities in the Eleventh Five Year Plan (FYP) from FY07 to FY12.
But it is expected to add only 12 GW, a slippage of around 10 GW. The slippages can be attributed to contracting
disputes in three projects, resolution whereof is underway. Getting clearance from various Government
departments also remains a bottle-neck for capacity expansions. However, CARE Equity Research is of the
opinion that challenges relating to financial closure are minimal on the back of healthy financial position and
strong cash accruals. The company is rated ‘AAA’ by CARE Ratings which means highest safety for timely
servicing of debt obligations and minimal credit risk.
Majority stake with Government leads to minority stake holder having limited say
Despite the recent dilution of 5 per cent in last quarter of FY10, the Government of India, through the President
of India holds 84.5 per cent stake in the company. Thus structurally, minority stakeholders do not have significant
say in the affairs of the company. Despite the good corporate governance practices, healthy internal control
systems and accountability, the minority is exposed to the risk of influence by the Government decisions, which
may many a times be in the interest of nation at large, thereby placing the minority shareholders at
disadvantageous position.
Healthy Corporate Governance practices
NTPC’s board currently comprises of nineteen directors, which include Chairman and Managing Director (CMD)
and six whole time functional directors (Finance, Commercial, Projects, Technical, HR and Operations) all having
rich experience of 25 – 35 years. Two directors are nominees of Government of India, while nine are independent
non-official part time directors and one as Chief Vigilance Officer (CVO) of the company.
NTPC has constituted ten committees which include Audit Committee, Shareholders/ Investors Grievance
Committee, Remuneration Committee, Committee on Management Controls, Contracts Sub- Committee, Project
Sub-Committee, Investment/Contribution Sub-Committee, Committee of the Board for allotment and post
allotment activities of NTPC’s Securities, Committee for Further Public Offering of NTPC’s Securities and
Enterprise Risk Management Committee. The company also has its own internal audit department and CVO as
mentioned.
NTPC was adjudged as one of the best governed company of India by a jury headed by Former Chief Justice of
India. It was conferred ‘ICSI National Award for Excellence in Corporate Governance – 2009’ by the Institute of
Company Secretaries of India. NTPC has also bagged ‘Golden Peacock Global Award for Excellence in
Corporate Governance for the year 2009’.
NTPC LIMITED
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CARE Equity Research values NTPC at Rs. 246 per share
According to CARE Equity Research, the Current Intrinsic Value (CIV) of NTPC stands at Rs. 246 per share.
This translates into Enterprise Value (EV) of Rs. 2.3 trillion ($ 50 – 52 billion). Thus, the equity shares of NTPC
have ‘Considerable Upside Potential’ from the current market price (CMP) of Rs 183.5 per share.
The CIV is calculated based on Sum of The Parts (SoTP) methodology: Discounted Cash Flow method
used for power related business and EV per tonne method used for coal assets
CARE Equity Research has arrived at CIV of NTPC at Rs. 246 per share based on SoTP. The power related
business is valued at Rs. 234 per share, while coal blocks are valued at Rs 12 per share.
NTPC: Target Price Summary
Source: CARE Equity Research
Discounted Cash Flow for Power related business
The overall firm Weighted Average Cost of Capital (WACC) is calculated based on our long term
assumptions of cost of financing summarized in below table.
CARE Equity Research has used Free Cash Flow (FCF) methodology to arrive at the firm value. The
forecasted FCF is as per CARE Equity Research estimates.
Terminal value is arrived at by using Gordon Growth Model. CARE Equity Research has assumed that in
the long-run, NTPC’s capital expenditure shall be equal to its depreciation charge.
VALUATION GRADE Considerable Upside Potential 5/5
Description Rs. Bn. Rs. Per share
Gross Value for Power related business 2,209
Less: Net Debt (FY10) 281
Value for power related business 1,928 234
Value for Coal Blocks 98 12
Total Value for Equity of NTPC 2,026 246
NTPC LIMITED
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NTPC: Valuation of Equity
Source: CARE Equity Research
Enterprise Value per tonne for coal blocks
The average Enterprise Value (EV) of coal miners usually ranges from $ 1.5 to $ 2.5 per tonne depending
on the quality of reserves, mining capacities and capacity ramp up plans.
The EV of Coal India Limited (CIL), the largest coal miner in India stands at Rs. 80 per tonne, based on
market price of Rs. 300 per share and mineable reserves of 19 billion tonnes.
Though the market price of CIL’s share is dynamic, EV of Rs. 80 per tonne ($1.8 per tonne) appears
reasonable.
Item Value Basis
Risk Free Rate 8.25% 10 year G-Sec yields
Equity Risk Premium 6.00% Average inflation
Beta 0.6 One year stock performance vis-a-vis Sensex
Cost of Equity 11.85%
Cost of Debt 6.00% Long term cost of debt
Tax Rate 25.00% Long term tax rate
Debt/Equity Ratio 1.00 Long term target D/E ratio
WACC 8.18%
Terminal growth rate 3.00%
(Rs billion except per share data)
2010-11 2011-12 2012-13 2013-14 2014-15
PAT 91 105 117 128 143
Deferred tax Liability 17 21 24 26 30
Depreciation 24 30 40 49 57
Interest (1-Tax Rate) 19 28 40 52 61
Capital Expenditure -207 -249 -264 -241 -279
Increase in Working Capital -12 -22 -37 -49 -62
Free Cash Flow (FCF) -68 -87 -81 -35 -50
Discount Rate 1.00 0.92 0.85 0.79 0.73
PV of FCF -68 -80 -69 -28 -37
PV of Terminal Value 2,491
Total Discounted Value of Firm 2,209
Less: Net Debt (FY10) 281
Sub Total 1,928
Add: Value of coal mines 98
Present Value of equity 2,026
No of Equity Shares (billion) 8
CIV 246
NTPC LIMITED
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EQUIGRADE
Hence, CARE Equity Research takes Rs. 80 per tonne ($1.8 per tonne) of mineable reserve as the base
for valuing NTPC’s coal blocks.
Since the coal blocks are used for captive purpose and not for external sales for profits, CARE Equity
Research assigns a 50 per cent discount for valuation of own coal blocks.
CARE Equity Research also assigns 15 per cent discount towards execution risks as mining has not yet
commenced and the blocks are under development stage.
Thus, CARE Equity Research values the own coal blocks having approximately 2 billion tones of mining
reserve at Rs. 34 per tonne ($ 0.8 per tonne) or Rs. 66 billion (Rs. 8 per share)
The blocks under JV with Coal India Limited – CNUPL, with estimated mining reserve of 1 billion tonne,
have been adjusted for 20 per cent holding company discount and thus have been valued at Rs. 54 per
tonne ($ 1.2 per tonne). Considering 50 per cent stake, the value relating to NTPC stands at Rs. 32 billion
(Rs. 4 per share)
NTPC: Value of Coal Blocks
(1) Discount for Captive Consumption; (2) Holding Company Discount; (3) Discount for execution risks
Source: CARE Equity Research
NTPC: Sensitivity Analysis of CIV
Source: CARE Equity Research
Weighted Average Cost of Capital (%)
7.50% 7.75% 8.18% 8.25% 8.50%
Term
inal
Year
Gro
wth
Rat
e 2.50% 257 239 218 209 196
2.75% 274 254 231 221 207
3.00% 293 211 246 235 219
3.25% 314 290 262 250 233
3.50% 338 311 280 267 248
Mineable
Reserves
(Bn. Tonnes)
Rs. Gross
value per
tonne (Rs.)
Discount Value
(Rs. Bn.)
NTPC
Stake
Value for
NTPC
(Rs. Bn.)
Per
share
(Rs.)
Own Blocks 2 80 50% (1) +
15% (3) 66 100% 66 8
CNUPL Blocks 1 80 20% (2) +
15% (3) 63 50% 32 4
98 12
NTPC LIMITED
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Company Overview
Incorporated in 1975 as a wholly owned company of the Government of India (GoI), NTPC Limited (NTPC) is
the largest power generating company in India and the first to receive the prestigious ‘Maharatna’ status. Through a
10 per cent stake sale by the GoI, NTPC got listed on the stock exchanges in October 2004. In February 2010, the
GoI divested further 5 per cent stake in the company through a Further Public Offer (FPO) thereby reducing its
stake to 84.5 per cent.
Based on assets worth, revenues, profits and returns on investment, the company has been ranked as the No.1
Independent Power Producer (IPP) in Asia and No.2 in the world by Platts. According to the Forbes list published
in 2010, NTPC ranks 341st in the list of world’s largest companies. The company operates with 5 subsidiaries and
18 JV’s that operates in different locations across the country.
Organization Chart
Source: CARE Equity Research
COMPANY BACKGROUND
NTPC LIMITED
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Business Overview
With a total current installed capacity of 34 GW (including Joint Ventures), NTPC is primarily engaged in the
business of power generation. During FY10, NTPC’s power generation plants accounted for around 18 per cent
and 29 per cent of the overall country’s power generating capacity and actual power generation respectively. The
power generation division accounts for almost the entire share of the company’s revenue. NTPC is also venturing
into new business activities like power trading, power equipment manufacturing, coal mining and consultancy. The
company plans in becoming an Integrated Power Major by diversifying itself through backward, forward and lateral
integration.
NTPC’s contribution to domestic power sector
*Excluding JVs
Source: CARE Equity Research
As on 31st
March, 2010, excluding JV’s, NTPC’s current power generation capacity comprises of fifteen coal based
power plants and seven gas / liquid based power plants. The coal based power plants account for about 86 per cent
of the overall capacity. During FY10, the coal based power plants of the company operated at a Plant Load Factor
(PLF) of 90.8 per cent as against the national average of 77.5 per cent.
Other Business activities and Subsidiaries
Power Trading
NTPC Vidyut Vyapar Nigam Ltd. (NVVN), a wholly owned subsidiary was created for trading power leading to
optimal utilization of NTPC’s assets. It is the second largest power trading company in the country. In order to
facilitate power trading in the country, ‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and
TCS has been formed for operating a Power Exchange.
Coal Mining
The backward integration move to create fuel security, NTPC has ventured into coal mining business. The GoI has
NTPC*
18%
Others
82%
All India Capacity share as on 31st
March 2010 (MW)
NTPC*
28%
Others
72%
All India Generation Share as on 31st
March 2010 (MW)
NTPC LIMITED
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so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through JV route.
Hydro Power
NTPC has entered into the hydro power business with the 800 MW Koldam hydro project in Himachal Pradesh.
One more project, Tapovan Vishnugad, is been taken up in Uttarakhand for 520 MW. A wholly owned subsidiary,
NTPC Hydro Limited, is also setting up hydro projects of capacities up to 250 MW.
Power Distribution
NTPC Electric Supply Company Ltd (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of
power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’ programme for rural
electrification and also working as 'Advisor cum Consultant' for Ministry of Power for implementation of
Restructured Accelerated Power Development and Reforms Programme (RAPDRP) launched by the GOI.
Equipment Manufacturing
NTPC has formed a JV with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has
also acquired stake in Transformers and Electricals Kerela Ltd. (TELK) for manufacturing and repair of
transformers.
Ash Business
NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal
into an opportunity. Ash is being used as a raw material input for cement companies and brick manufacturers.
NVVN is engaged in the business of Fly Ash export and sale to domestic customers. JV’s with cement companies
are being planned to set up cement grinding units in the vicinity of NTPC stations.
Key Management Personnel: Functional Directors
Source: Company
Name Designation Education Experience
Shri Arup Roy
Choudhury
Chairman & Managing
Director B.E. (Civil), BIT 32 years
Shri A. K. Singhal Director (Finance) C.A. 29 years
Shri. I.J.Kapoor Director (Commercial) B.E ( Mechanical), MBA
(Marketing) 32 years
Shri B.P. Singh Director(Projects) B.E. (Mining) 36 years
Shri D.K. Jain Director (Technical) B.E (Mechanical) - IIT -
Kharagapur 35 years
Shri S. P. Singh Director (HR) B.E (Electricals) 25 years
Shri N. N. Misra Director (Operations) B.E (Electricals) 33 years
NTPC LIMITED
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Deficit situation in power
India is the world’s sixth largest energy consumer, relying on coal as the primary energy source for over half of its
total energy needs. In FY10, India’s power generating capacities stood at around 159 GW, with close to 64 per cent
accounted by coal based plants. The plant load factor, that measures utilisation of capacities, stood at mere 77.5 per
cent. However, India has been facing deficit scenario, with total energy deficit and peak deficit at approximately
10.1 per cent and 12.7 per cent respectively in FY10. In the scenario of GDP growing at 8 per cent, which
according to CARE Equity Research seems realistic, the energy demand is likely to increase from around 110 Giga
Watts (GW) in FY11E to 160 GW in FY17 and 220 GW in FY22. This translates into a compounded annual
growth rate (CAGR) of more than 6 per cent through the above period. Accordingly, from the current capacity of
around 162 GW, the power generation capacities need to grow to around 230 GW by FY17 and 310 GW by FY22
assuming similar PLF. The timely execution of such huge quantum of expansions would remain a key for the
sector.
Trend in power deficit
Source: NTPC Presentation
A regulated sector with cap on the earnings
The power sector is regulated under the Electricity Act and Central Electricity Regulatory Commission (CERC) is
constituted as the regulator of the industry. CERC approves tariff for every five year plans. The new tariff norms
(2009-14) mandates 15.5 per cent return, with additional incentive of 0.5 per cent on timely completion, with
further income from Unscheduled Interchange (UI), incentive for higher availability and better operating
parameters.
SNAPSHOT OF THE INDUSTRY
13.011.8 12.2 11.2 11.7
12.3
13.816.6
11.912.7
7.8 7.58.8
7.1 7.38.4
9.6 9.8
11.110.1
6
9
12
15
18
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
Peak Deficit (%) Energy Deficit (%)
NTPC LIMITED
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Consolidated Income Statement
(Rs Billion) FY08 FY09 FY10 FY11 P FY12 P FY13 P
Operating Income 416 460 512 591 701 827
EBITDA 144 139 160 171 210 252
Depreciation and amortisation 22 25 29 24 30 40
EBIT 122 114 131 148 180 212
Interest 19 21 21 26 38 53
PBT 104 93 110 122 142 160
Ordinary PAT (After minority interest) 75 81 88 91 105 117
PAT (After minority interest) 75 81 88 91 105 117
Fully Diluted Earnings Per Share* (Rs.) 9.1 9.8 10.7 11.1 12.7 14.1
Dividend, including tax 34 35 37 38 41 43
* Calculated based on ordinary PAT on Current Face Value of Rs. 10/- per share
Consolidated Balance Sheet
(Rs Billion) FY08 FY09 FY10 FY11 P FY12 P FY13 P
Net worth (incl. Minority Interest) 544 601 645 698 762 835
Debt 303 388 441 594 781 979
Deferred Liabilities / (Assets) 3 -9 -1 0 0 0
Capital Employed 849 980 1,086 1,292 1,543 1,814
Net Fixed Assets, incl. Capital WIP 538 659 765 949 1,167 1,391
Investments 134 117 118 128 138 148
Loans and Advances 41 70 57 66 78 92
Inventory 28 34 35 40 48 57
Receivables 32 38 71 78 88 100
Cash and Cash Equivalents 154 173 161 167 185 217
Current Assets, Loans and Advances 263 325 332 361 411 479
Less: Current Liabilities and Provisions 86 120 129 146 173 204
Total Assets 849 980 1,086 1,292 1,543 1,814
FINANCIAL STATISTICS
NTPC LIMITED
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Ratios based on Consolidated Financials
FY08 FY09 FY10 FY11 P FY12 P FY13 P
Growth in Operating Income 13.6% 10.6% 11.2% 15.3% 18.7% 17.9%
Growth in EBITDA 11.3% -3.4% 15.1% 6.9% 22.8% 19.9%
Growth in PAT 8.3% 8.3% 9.2% 3.3% 15.1% 10.9%
Growth in EPS 8.2% 8.3% 9.3% 3.3% 15.1% 10.9%
EBITDA Margin 34.6% 30.2% 31.3% 29.0% 30.0% 30.5%
PAT Margin 17.9% 17.6% 17.3% 15.5% 15.0% 14.1%
RoCE 15.1% 12.5% 12.7% 12.4% 12.7% 12.7%
RoE 14.4% 14.1% 14.2% 13.6% 14.4% 14.6%
Net Debt-Equity (times) 0.3 0.4 0.4 0.6 0.8 0.9
Interest Coverage (times) 7.8 6.6 7.7 6.6 5.6 4.8
Current Ratio (times) 3.1 2.7 2.6 2.5 2.4 2.3
Inventory Days 24 27 25 25 25 25
Receivable Days 28 30 50 48 46 44
Price / Earnings (P/E) Ratio 17.1 16.5 14.4 12.9
Price / Book Value(P/BV) Ratio
2.3 2.2 2.0 1.8
Enterprise Value (EV)/EBITDA 11.2 10.4 8.5 7.1
Source: Company, CARE Equity Research
NTPC LIMITED
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Fundamental Grade
This grade represents how sound the company is fundamentally, vis-à-vis other listed companies in India. This grade
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2. Financial Soundness
3. Management Quality
4. Corporate Governance Practices
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CARE Fundamental Grade Evaluation
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4/5 Very Good Fundamentals
3/5 Good Fundamentals
2/5 Modest Fundamentals
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Valuation Grade
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stock.
EXPLANATION OF GRADES
NTPC LIMITED
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The grade is assigned on a five-point scale as under:
CARE Valuation Grade Evaluation
5/5 Considerable Upside Potential
(>25% from CMP)
4/5 Moderate Upside Potential
(10-25% from CMP)
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(+/- 10% from CMP)
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(Negative 10-25 from CMP)
1/5 Considerable Downside Potential
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NTPC LIMITED
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