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CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

High on Capitalisation and CAPEX

Initiating Coverage NTPC’s installed capacity is likely to grow at a CAGR of 11% for the period FY16-20E, almost double the rate it

achieved for the 8 year period from FY08-16. Due to this, we believe that Company’s CWIP/ Capital Employed

ratio has peaked (currently at 40%) and is likely to reduce to 20% by FY20E, resulting in a gradual improvement in

RoE (from 9.3% in FY17 to 12.3% by FY20E). With 16% of Country’s generating capacity and 31% share in

Country’s generation, NTPC is likely to benefit from the favourable macro in the power sector (UDAY scheme

helping electricity utilities improve their financial health – though we believe that the scheme is not without its

implementation challenges). We also like the fixed RoE business model with complete pass-through of costs and

high level of fuel security (96% of existing coal capacities have firm long-term fuel supply agreements).

Considering the stock rally of 20% in the last 6 months and with no near term catalysts for RoE improvement, we

would wait for a better risk/reward. We initiate coverage with an “ADD” rating with a SoTP based target price of

Rs. 170/ share.

High Capitalisation and CAPEX phase: With 1300MW of capacities installed and waiting to be commercially

operational and with ~23.2GW of power capacities in various stages of construction (excluding Solar), Company is at

the beginning of a high CAPEX and high Capitalisation phase. We expect 14% growth in CAPEX and a 28% growth in

Capitalisation for FY16-18E

Reduction in CWIP: At Rs. 734bn, CWIP at the end of FY16 is 40% of capital employed and 33% of fixed assets. With

the increased capitalisation and capacity additions CWIP as % of capital employed to reduce to 20% by FY20E

Regulated Equity to grow at 20% CAGR: ~10GW of power capacities will be commercially operational in the next 2

years resulting in the regulated equity growing by 20% (from current Rs. 41bn to Rs. 60bn). This along with decrease in

CWIP and increased leverage levels (D/E to grow from 1x in FY16 to 1.4x in FY20E) will result in improvement in RoE

Key risks: Key risks to our thesis are: a) Company’s ongoing power projects could take longer than our estimates for

commercial start-up resulting in the improvement in RoE to be delayed, b) Periodic revision of CERC’s regulations in

FY19 may not be favourable to the Company, c) UDAY led macro improvement in the sector may not be material as

expected, d) Power consumption demand pick-up may not materialise as expected, and e) Non-core business ventures

and low RoE Solar plans can hamper prospects of the Company

Valuation: We value the stock on an SoTP basis giving 1.3x our FY18E book value for the standalone business (Stock

has traded above 1.3x 1 year forward book value for 2/3rds of the time in the last 5 years) arriving at a target price of

Rs. 170/ share.

Date 28 Sept 2016

Market Data

SENSEX 28294

Nifty 8723

Bloomberg ntpc IN

Shares o/s 8,245mn

Market Cap Rs. 1,255bn

52-wk High-Low Rs. 170-117

3m Avg. Daily Vol Rs. 693mn

Index member NIFTY

Latest shareholding (%)

Promoters 70.0

Institutions 27.8

Public 2.3

VIJAYARAGHAVAN SWAMINATHAN [email protected] +91 44 4344 0022

BHARANIDHAR VIJAYAKUMAR [email protected] +91 44 4344 0038

Stock performance

1m 3m 12m

NTPC -4% 2% 25%

SENSEX 2% 7% 9%

NIFTY 2% 8% 11%

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

Financial Summary (Consolidated)

Year Revenues (Rs. mn) EBITDA (Rs. mn) Margin, % PAT (Rs. mn) EPS (Rs.) BV (Rs.) P/E(x) P/BV (x) ROE

FY15 806,219 175,122 22% 99,922 12.1 100 12.5 1.5 12%

FY16 787,054 191,631 24% 101,622 12.3 108 12.3 1.4 12%

FY17E 825,300 207,753 25% 82,393 10.0 114 15.2 1.3 9%

FY18E 956,787 255,276 27% 97,292 11.8 122 12.9 1.2 10%

Indian Power Sector

Power Demand – Supply*

Northern Region FY12 FY13 FY14 FY15 FY16 Apr - Aug

2016

Capacity, GW 53.9 59.9 64.3 69.4 76.3 80.1

Additions, GW 6.9 6.0 4.4 5.1 6.9 3.8

% growth in Capacity 15% 11% 7% 8% 10% 5%

Peak Demand, GW 40.2 45.9 45.9 52.0 54.5 53.4

% growth 8% 14% 0% 13% 5% -2%

Peak Supply, GW 37.1 41.8 42.8 47.6 50.6 52.6

% growth 9% 13% 2% 11% 6% 5%

Peak Deficit, % -7.8% -8.9% -6.9% -8.3% -7.1% -1.4%

Western Region

Capacity, GW 64.4 76.5 87.4 97.7 102.3 108.9

Additions, GW 10.8 12.1 10.9 10.3 4.6 6.6


Peak Demand, GW 42.4 40.1 41.3 44.2 48.6 45.4

% growth 4% -5% 3% 7% 10% 4%

Peak Supply, GW 36.5 39.5 40.3 43.1 48.2 45.0

% growth 5% 8% 2% 7% 12% 4%

Peak Deficit, % -13.8% -1.5% -2.4% -2.3% -0.9% -0.9%

Southern Region

Capacity, GW 52.7 55.9 58.3 63.7 71.3 77.3

Additions, GW 5.3 3.1 2.5 5.4 7.5 6.1


Peak Demand, GW 37.6 38.8 39.0 39.1 37.8 41.2

% growth 13% 3% 1% 0% -3% 9%

Peak Supply, GW 32.2 31.6 36.0 37.0 36.8 40.5

% growth 3% -2% 14% 3% -1% 10%

Peak Deficit, % -14.4% -18.5% -7.6% -5.2% -2.7% -1.6%

Power Demand - Supply

Eastern Region FY12 FY13 FY14 FY15 FY16 Apr - Aug

2016

Capacity, GW 26.3 28.1 30.1 33.3 34.6 35.6

Additions, GW 3.1 1.8 2.0 3.3 1.2 1.1


Peak Demand, GW 14.7 16.7 15.9 17.0 18.1 18.6

% growth 7% 13% -5% 7% 6% -1%

Peak Supply, GW 14.0 15.4 15.6 16.9 18.0 18.6

% growth 7% 10% 1% 9% 6% 3%

Peak Deficit, % -4.8% -7.4% -1.8% -0.6% -0.6% -0.2%

All India

Capacity, GW 199.9 223.3 243.0 267.6 298.1 305.6

Additions, GW 26.3 23.5 19.7 24.6 30.4 7.5


Peak Demand, GW 130.0 135.5 135.9 148.2 153.4 153.0

% growth 6% 4% 0% 9% 4% 2%

Peak Supply, GW 116.2 123.3 129.8 141.2 148.5 150.0

% growth 5% 6% 5% 9% 5% 3%

Peak Deficit, % -10.6% -9.0% -4.5% -4.7% -3.2% -2.0%

Capacity in a region is not indicative of supply potential due to presence of

hydel capacity and solar capacity whose utilizations are lower than average

Power demand (in MW) reported is a measure of load connected to the grid;

actual demand is directly correlated to ability of Distribution Utilities to buy

power and demand from industrial and household consumers; increase in

buying power and in connected load will increase demand

Summary of Power Demand-Supply scenario in India

Western Region’s and Southern Regions deficits have seen the most

improvement

*Demand Supply growth for Apr-Aug 2016 is over the same period last year

Indian Power Sector

16.6%

11.9% 12.7%

9.8% 10.6%

9.0%

4.5% 4.7%

3.2%

2.0%

0%

5%

10%

15%

20%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Aug-16

Peak Deficit, % 0

20

40

60

80

100

120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 Aug-16

Gig

a W

att

s

Peak Demand, GW Peak Demand Met, GW

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

mn

un

its

Base Demand, mn units Base Demand Met, mn units

Power Deficit improves significantly in the last 8 years – FY08-16 peak-supply in MW grows at 6.3%, demand CAGR at 4.4%

Peak Demand CAGR of

4.4% for FY08-16

Base Demand CAGR of

5.7% for FY08-16

All India Peak Deficit

All India Base Deficit

9.9%

11.1% 10.1%

8.5% 8.5% 8.7%

4.2% 3.6%

2.1%

0.7%

0%

5%

10%

15%

20%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Aug-16

Base Deficit, %

Indian Power Sector

India Generation Capacity

MW as at the Date Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Aug-16

Coal 76,049 77,649 84,198 93,918 112,022 130,221 145,273 164,636 185,173 186,593

Central 29,010 29,620 31,165 32,545 39,115 44,055 45,925 48,130 51,390 51,390

State 42,048 42,538 44,977 47,257 49,457 51,661 53,828 58,101 64,321 64,211

Private 4,991 5,491 8,056 12,616 23,450 34,505 45,520 58,405 69,462 70,992

Gas 14,656 14,877 17,056 17,706 18,381 20,110 21,782 23,062 24,509 25,057

Central 6,639 6,639 6,702 6,702 6,702 7,066 7,066 7,520 7,555 7,491

State 3,834 3,672 4,046 4,327 4,965 5,676 6,548 6,974 6,975 7,211

Private 4,183 4,566 6,308 6,677 6,714 7,368 8,168 8,568 9,978 10,356

Diesel 1,202 1,200 1,200 1,200 1,200 1,200 1,200 1,200 994 919

Central 0 0 0 0 0 0 0 0 0 0

State 605 603 603 603 603 603 603 603 439 364

Private 597 597 597 597 597 597 597 597 555 555

Hydro 35,909 36,878 36,863 37,567 38,990 39,491 40,531 41,267 42,783 42,968

Central 8,592 8,592 8,565 8,685 9,085 9,459 10,355 11,091 11,571 11,651

State 26,087 27,056 27,065 27,257 27,380 27,437 27,482 27,482 28,092 28,197

Private 1,230 1,230 1,233 1,425 2,525 2,595 2,694 2,694 3,120 3,120

Nuclear 4,120 4,120 4,560 4,780 4,780 4,780 4,780 5,780 5,780 5,780

Central 4,120 4,120 4,560 4,780 4,780 4,780 4,780 5,780 5,780 5,780

State 0 0 0 0 0 0 0 0 0 0

Private 0 0 0 0 0 0 0 0 0 0

Renewables 11,125 13,242 15,521 18,455 24,503 27,542 29,463 31,692 38,822 44,237

Central 0 0 0 0 0 0 0 0 0 0

State 2,116 2,248 2,701 3,009 3,514 3,748 3,727 3,804 1,934 1,964

Private 9,009 10,995 12,820 15,446 20,990 23,794 25,736 27,888 36,887 42,273

Total India 143,061 147,965 159,398 173,626 199,877 223,344 243,029 267,637 298,060 305,554

Central 45,121 48,361 48,971 50,993 52,713 59,683 65,360 68,126 72,521 76,297

State 70,096 74,689 76,116 79,392 82,452 85,919 89,125 92,188 96,963 101,761

Private 17,113 20,011 22,879 29,014 36,761 54,276 68,859 82,715 98,153 120,003

12%

7%

-2%

2%

4%

17%

10%

FY08-16 CAGR

Supply growth is driven by a 10% CAGR in total capacity addition; coal capacities have been added at a 12% CAGR

7%

5%

39%

2%

8%

11%

-4%

-1%

4%

1%

12%

4%

-1%

19%

6%

4%

24%

Indian Power Sector

67% 10%

7%

14% 2%

Western Coal

Gas

Hydel

Renewables

Nuclear

Geography and State-wise current capacity and capacity additions

Addition FY08-16 MW

Northern States 39,929

Rajasthan 11,816

U.P. 7,903

Punjab 5,007

Addition FY08-16 MW

Eastern States 17,651

Orissa 5,538

West Bengal 4,763

Bihar 992

Current Capacity MW

Southern States 77,322

Tamil Nadu 26,260

Telangana 17,334

Karnataka 15,763

A.P. 11,609

Current Capacity MW

Western States 108,857

Maharashtra 40,599

Gujarat 30,189

Madhya Pradesh 18,917

Chhattisgarh 16,370

57%

7%

23%

11% 2%

Northern Coal

Gas

Hydel

Renewables

Nuclear

Current Capacity MW

Northern States 80,138

U.P. 19,293

Rajasthan 17,953

Punjab 12,936

Addition FY08-16 MW

Western States 63,387

Maharashtra 20,275

Gujarat 18,973

Chhattisgarh 12,614

Madhya Pradesh 10,291

Addition FY08-16 MW

Southern States 33,703

Tamil Nadu 11,742

Telangana 10,252

Karnataka 7,498

A.P. 2,824

48%

9%

15%

25%

3%

Southern Coal

Gas

Hydel

Renewables

Nuclear

Current Capacity MW

Eastern States 35,611

West Bengal 10,068

Orissa 9,422

Bihar 3,030

86%

0% 12%

2%

Eastern Coal

Gas

Hydel

Renewables

Nuclear

Indian Power Sector

Key entities that have added power generation capacity since FY08

Top Entities Which have added Generation Capacity from FY08

MW 2008 2016 CAGR, % Addition

Central Sector

NTPC Group 29,394 46,653 6% 17,259

DVC 3,120 7,490 12% 4,370

NHPC 5,175 6,507 3% 1,332

Private Sector

Adani Power 0 10,440 - 10,440

Tata Power 3,218 8,730 13% 5,512

Reliance Power/ Reliance

Infra 890 6,974 29% 6,084

JSW Energy 260 4,531 43% 4,271

GMR Infra 570 3,893 27% 3,323

Lanco Infratech 470 3,460 28% 2,990

Jindal Power 250 3,400 39% 3,150

Torrent Power 500 3,252 26% 2,752

CESC 875 2,485 14% 1,610

Essar 515 2,315 21% 1,800

GVK Power & Infra 445 1,784 19% 1,339

RattanIndia Power 0 1,620 - 1,620

Total India 143,061 298,060 10% 154,999

NTPC adds the most amount of capacity

in this time period

Adani Power has emerged as the largest

private power generator at the end of

FY16 moving past Tata Power

NTPC 16%

Adani 4%

Tata 3%

DVC 3%

Reliance 2%

NHPC 2%

JSW 2%

GMR 1% Lanco

1% Jindal

1% Torrent

1%

CESC 1%

Essar 1%

GVK 1% RattanIndia

1% Other Central

4%

Other Private 24%

State Sector 34%

All India Capacity, 2016

NTPC 22%

Adani 0%

Tata 2% DVC

2%

Reliance 1%

NHPC 4%

JSW 0%

GMR 0%

Lanco 0%

Jindal 0%

Torrent 0%

CESC 1%

Essar 0%

RattanIndia 0%

Other Central 9%

Other Private 3%

State Sector 53%

All India Capacity, 2008

Indian Power Sector

The steep fall was due to drop in PLFs at gas plants However, central sector’s thermal PLF stayed higher

All India thermal PLFs falls in this period All India gross generation (mn units) sees a CAGR of 6% in FY08-FY16

711,877 723,794 771,551

811,143 876,887 912,057

967,150 1,048,673

1,107,386

7%

2%

7% 5%

8%

4%

6%

8%

6%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

mn

un

its

Thermal Hydro Nuclear Bhutan Import yoy growth

Generation of power also grows; however increase in capacity results in lower utilizations (PLFs fall)

57 56

66 64 61

45

34 29 28


Gas PLFs, % 87 84 85 89

82 79

76 74 72


Central Sector Thermal PLF, %

79 77 77 75 73 70

66 65 62


All India Thermal PLF, %

Source: CEA, Spark Capital Research

Indian Power Sector

Thermal PLFs since FY15 have been falling every month which is likely due to lower demand for power and higher capacity

62 64 59 58 58

64 67

60 62 63 65 64 68

62 61

54 52

All India Thermal PLF, %

72 77

70 71 70 72 72 69 70

73 76 76 79

74 74 68 66

Central Thermal PLF, %

56 59

54 52 48

57 61

54 54 57 56 55

63 57 54

43 40

State Thermal PLF, %

58 57 55 54 55

63 68

60 63 63 65 63 63 57 56

52 51

Private Thermal PLF, %

Source: CEA

Indian Power Sector

6%

5%

10%

3%

13%

5%

3%

12%

0%

5%

10%

15%

20%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Agricultural Consumption yoy, %

8% 9%

10%

9%

15%

9% 8%

9%

0%

5%

10%

15%

20%


Household Consumption yoy, %

11%

5%

4%

12%

4%

0% 1%

9%

0%

5%

10%

15%

20%


Industrial Consumption yoy, %

Consumption of power – Consumer Category-wise; total CAGR of 8%, Industrial demand CAGR of only 5%

159,351 167,651 173,924 194,107 200,989 201,014 203,142 221,455

442,475 473,295

513,495

564,226

625,947 657,246

695,928

746,001

9%

7%

8%

10% 11%

5% 6%

7%


mn

un

its

CONSUMPTION OF POWER IN INDIA

Industries Households Agriculture Commercial Others yoy, %

23%

8%

23%

36%

10%

Consumption, 2008

Domestic Commercial Agriculture Industries Others

26%

8%

23%

30%

13%

Consumption, 2015


Source: PFC

Indian Power Sector

Power Tariffs – Free power to Agriculture consumers subsidised through higher tariffs to Industrial consumers

23% 24% 24% 24% 25% 26% 26% 26%

23% 23% 23% 22% 22% 22% 22% 23%

36% 35% 34% 34% 32% 31% 29% 30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Proportion of DISCOM sales to consumer category


18% 18% 19% 19% 20% 21% 21% 22%

6% 6% 6% 7% 7% 7% 8% 9%

49% 47% 46% 46% 43% 41% 41% 41%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Proportion of DISCOM revenues from consumer category


2.4 2.5 2.6 2.9

3.2 3.5

3.8 4.0

0.8 0.9 0.9 1.2 1.3 1.5

1.7 1.9

4.1 4.2 4.4 4.7

5.2

6.0

6.7 6.8

0.0

2.0

4.0

6.0

8.0


Rs./

unit

Avg. Tariff - Domestic Avg. Tariff - Agriculture

Avg. Tariff - Industries

Source: PFC

% of Agri % of Agri % of Industrial % of Industrial

State in mn units sold in Revenues in mn units sold in Revenues

Haryana 25% 2% 27% 34%

Karnataka 36% 23% 20% 27%

Rajasthan 40% 36% 24% 28%

Punjab 26% - 34% 53%

A.P. 26% 2% 35% 54%

Maharashtra 28% 14% 31% 41%

Gujarat 25% 13% 47% 62%

Tamil Nadu 19% - 27% 53%

M.P. 39% 16% 21% 35%

U.P. 18% 7% 24% 40%

Telangana 31% 3% 28% 43%

Indian Power Sector

This along with high AT&C losses, leads to loss making DISCOMS

(43) (35) (33) (40) (92) (98)

(167) (87)

(35) (80) (103) (119)

(133) (121)

(141)

(128)

(24)

(68)

(110)

(214)

(196)

(124)

(156)

(125)

(178)

(347)

(416)

(520)

(769)

(717)

(641)

(583)

2008 2009 2010 2011 2012 2013 2014 2015

Rs. b

n

DISCOM loss (after subsidy)

U.P. Tamil Nadu Rajasthan Haryana Punjab Madhya P. Others

27%

25% 25% 24% 24% 23%

21% 20%

2% 2% 1%

2% 3% 2% 2%

4%

29%

27% 27% 26% 27%

25%

23% 24%

2008 2009 2010 2011 2012 2013 2014 2015

All India T&D Loss All India Collection shortffall

All India AT&C Loss

AT&C Loss by key states, %

State 2008 2009 2010 2011 2012 2013 2014 2015

Punjab 19% 19% 18% 17% 19% 18% 18% 18%

Haryana 33% 33% 29% 28% 28% 33% 34% 33%

Madhya P. 47% 47% 41% 37% 38% 31% 28% 30%

Tamil Nadu 16% 14% 19% 20% 22% 21% 22% 25%

Rajasthan 33% 30% 30% 24% 25% 20% 27% 29%

U.P. 37% 35% 36% 40% 42% 43% 25% 34%

Source: PFC

2.9 3.4 3.5 3.7

4.5 5.0 5.1 5.1

2.4 2.6 2.7 3.0 3.3

3.7 3.9 4.1

(0.5) (0.8) (0.9) (0.8) (1.2) (1.3) (1.1) (1.1)

2008 2009 2010 2011 2012 2013 2014 2015

Avg. Cost of Supply Avg. Revenue Collected Gap per unit (without Subsidy)

Indian Power Sector

Comparison between the bailout packages

2003 FRP - 2012 UDAY - 2015

Who was defaulting? State power utilities State power utilities State power utilities

Owed money to Central PSUs (NTPC, PGCIL etc) Banks/ Financial Institutions Banks/ Financial Institutions

What is being

restructured? Payables Short term Liabilities Debt

Amount involved ~Rs. 0.41tn ~Rs. 1.6tn ~Rs. 4.5tn

Nature of the bailout

package

One Time Settlement

50% of the outstanding short term liabilities upto

March 31, 2012 to be taken over by State

Governments. This shall be first converted into

bonds to be issued by DISCOMs to participating

lenders, duly backed by State Governments

guarantee

75% of DISCOM debt as on 30 September 2015 to

be taken over by states over two years (50% of

before March 2016 and 25% in FY17). States will

issue non-SLR including SDL bonds in the market

or directly to the respective banks / Financial

Institutions (FIs) holding the DISCOM debt to the

appropriate extent @GSEC rate + 50bps

50% of the interest was waived, resulting

in a total of Rs. 336bn being settled. The

settlement happened through the

issuance of 8.5% tax free bonds by the

respective State Governments

The balance 50% Short Term Loan by

rescheduling loans and providing moratorium on

principal and the best possible terms for this

restructuring to ensure viability of this effort

DISCOM debt not taken over by the State shall be

converted by the Banks / FIs into loans or bonds

with interest rate not more than the bank’s base

rate plus 0.1%

What is different? Not linked to the performance of the

DISCOMs

Performance linked – states have to ensure that

tariff rationalization is carried out each year

DISCOMs to reduce AT&C losses from 22% now

to 15% by FY19 and to reduce the gap between

Average Revenue Realized (ARR) & Average Cost

of Supply (ACS) by FY19

Incentives provided by the centre if AT&C losses

are reduced more than the rate given in RAPDRP

scheme and payment of 25% of the principal

repayment

Losses after FY19 will be taken over by states in a

graded manner. Banks will not lend to DISCOMs

for financing losses henceforth. Targets to install

meters, consumer indexing and GIS mapping set.

R-APDRP was launched in July 2008 with focus on

establishment of base line data, fixation of accountability,

reduction of AT&C losses upto 15% level through

strengthening & up-gradation of Sub Transmission and

Distribution network and adoption of Information Technology.

8 years on, the stated objective has not been met

Apart from giving a temporary relief to cash

strapped DISCOMs the scheme failed to address

structural issues. Less time for implementation,

poor monitoring (both Central & State) are other

reasons for its ineffectiveness

Touted to be the only hope and only way the

issues can be addressed; many industry

participants agree on implementation

challenges; however even a partial

achievement of target is seen as incremental

benefit for the sector

Project UDAY – Only ray of hope – Scheme success contingent on POLITICAL WILL from State governments

Indian Power Sector

Additional incentives for UDAY subscribers: UDAY scheme is voluntary. States accepting UDAY and performing as per operational milestones will be given additional /

priority funding through Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY),Integrated Power Development Scheme (IPDS), Power Sector Development Fund (PSDF) or

other such schemes of Ministry of Power and Ministry of New and Renewable Energy. Such States shall also be supported with additional coal at notified prices and, in

case of availability through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings (CPSUs). States not meeting operational

milestones will be liable to forfeit their claim on IPDS and DDUGJY grants

Progress on UDAY so far:

• Extenstion of deadline to subscribe to UDAY: In order to facilitate the States to avail the benefits of Ujwal DISCOM Assurance Yojana (UDAY), the Government of

India has extended the time lines of the scheme to join the scheme by 31.03.2017. Further, the timelines for taking over 50% of the DISCOM debts, as existing on

30.09.2015, through issuance of Bonds by participating States and the timelines for taking over outstanding CPSU dues of the State of Jammu & Kashmir under UDAY

now stand extended to 31.03.2017

• So far, 13 States have already signed the Memorandum of Understanding (MoU) with the Government of India. In addition to them, eight States and one Union Territory

(UT) have shown willingness to join UDAY

• As on 19.07.2016, 77% of the debt envisaged by participating States under UDAY has been issued as Bonds and thus reduction in interest cost has already started.

Cost of Power is also on downward trend

UDAY assumes consistent monitoring of SEB’s performance – Will it happen? MoU involves a tripartite agreement with Ministry of Power (MoP), State and

DISCOMs includes: (1) Clear identification of responsibilities of each of the three parties (2) Details of specific operational activities to be undertaken in each state (3) Circle

level targets of loss reduction with responsibilities, resources and timelines. Though the monitoring committee consist of representation from - Central Electricity

Authority (CEA), Power Finance Corporation (PFC), Rural Electrification Corporation (REC), Power Grid and Central Electricity Regulatory Commission (CERC),

it remains to be seen whether this committee will be effective with political will being a key factor for UDAY to succeed

UDAY - Ujwal DISCOM Assurance Yojna

Timeline Benefit Estimated Saving (Rs. bn)

Demand Side Measures

Feeder & Distribution Transformer metering Jun'17 Reduces power theft & AT&C losses -

Consumer Indexing, GIS mapping Sept'18 Reduces power theft & AT&C losses -

Energy Efficient Equipments 2019 Reduces peak load 662

Rural Electrification 2017 Economic progress -

Supply Side Measures

Increase Coal supply 2020 Reduces coal shortages 360

Completion of Railway Lines for coal evacuation NA Reduces coal shortages -

Solar (100GW), Wind (60GW) capacity additions 2022 Reduces power deficit. Clean energy -

Cost/ Financial Side Measures

DISCOM Debt recast Ongoing Reduces power shortage and improves DISCOM health 430

AT&C loss reduction 2019 Reduces technical and commercial losses 575

Reduction of gap between Avg. Revenue and ACS Ongoing Reduces financial loss of DISCOMs -

Coal Linkage Rationalisation Ongoing Reduces cost of coal for generators 60

Project UDAY in a nut shell

Indian Power Sector

States Input Energy (2015) Base Deficit Peak Deficit AT&C Loss Party Ruling Loans Savings

bn units Share % (2016) % (2016) % (2015) 2016 Rs. bn Rs. bn

East 101 10% -1% -1%

Bihar 19 2% -1% -7% 44% JD(U) 38 5

Jharkhand 11 1% -2% -2% 47% BJP 3 0

Orissa 32 3% -1% 0% 39% BJD 46

Sikkim 1 0% 0% 0% 71% SDF 0

West Bengal 38 4% 0% 0% 35% TMC 129

North East 16 2% -6% -8%

Arunachal P. 1 0% -7% -4% 68% Congress 0

Assam 9 1% -6% -8% 26% Congress 23

Manipur 1 0% -4% -1% 50% Congress 0

Meghalaya 2 0% -7% -6% 35% Congress 4

Mizoram 1 0% -4% -1% 33% Congress 0

Nagaland 1 0% -2% -1% 38% Congress 3

Tripura 2 0% -5% -10% 38% CPI 2

North 323 33% -5% -7%

Delhi 32 3% 0% 0% 13% AAP 103

Haryana 51 5% 0% 0% 33% BJP 341 41

Himachal P. 12 1% -1% 0% 15% Congress 46

J&K 18 2% -15% -15% 49% PDP 2 0

Punjab 48 5% 0% 0% 18% Akali Dal 219 26

Rajasthan 68 7% 0% 0% 29% BJP 811 97

U.P. 82 8% -13% -15% 34% SP 570 68

Uttarakhand 12 1% -2% 0% 19% Congress 14

South 262 27% -2% -3%

A.P., Telangana 92 9% 0% -2% 11% TDP/ TRS 373

Karnataka 59 6% -5% -4% 19% Congress 98

Kerala 22 2% -1% -3% 18% Congress 58

Pondicherry 3 0% 0% -5% 16% AINRC 0

Tamil Nadu 85 9% -1% -1% 25% AIADMK 755

West 278 28% 0% -1%

Chhattisgarh 24 2% -1% -4% 28% BJP 19 2

Goa 4 0% 0% -5% 11% BJP 1 0

Gujarat 82 8% 0% 0% 16% BJP 22 3

Madhya P. 56 6% 0% 0% 30% BJP 118 14

Maharashtra 113 11% 0% -2% 20% BJP 170 20

India 980 100% -2% -3% 24% 3,967 278

We are assuming that the states

which have signed the MoU for

UDAY and the other BJP ruled

states(given that BJP is at the

centre it is more likely that BJP

ruled states will be the first to adopt

UDAY) will benefit in the near term

from the scheme

Considering 0% interest cost on

75% of debt and lower interest cost

of 9.5% for the remaining 25%, it

can be seen that for these states

there is a cumulative savings of Rs.

278bn per annum in the near term

With savings of Rs. 278bn and

funding from banks for their working

capital there is likely to be higher

propensity for power purchase in

the near term

With Rs. 278bn and at an average

cost of power purchase of ~Rs. 4/

unit there is likely to be demand for

~69bn units which is ~7% of the

input energy of 980bn in FY15

For certain states like U.P. saving of

Rs. 68bn represents >20% of its

current power purchase cost

Near term impact of UDAY on cost savings and the resultant incremental ability for power purchase by SEBs

Indian Power Sector

Infrastructure - UDAY insists on Consumer indexing, GIS mapping and Smart metering

Non – Metering

and tampered meters

In U.P. for example, ~40% of households are not metered (out of 17mn electrified households, 6.6mn is unmetered as on

FY15). Even if meters are provided they are easily tampered especially in states like U.P., Tamil Nadu and Rajasthan

Outdated technologies/ no

GIS mapping

The technology maps the HT/ LT consumers and electrical network assets and their performance on a geographical map which can be

used for monitoring consumption and load details. At present this practice is either non existent or the data is collated manually

which does not allow for real time monitoring and identification of areas with power thefts and losses

Commercial Losses – UDAY insists on Compulsory Feeder and Distribution Transformer metering

Theft of power, Illegal

Connections

Theft of power by hooking or by plain tampering of meters is a common practice. To prevent this the state machinery has to penalise

offenders and support the legal system to do so. For example, Gujarat, Maharashtra, Karnataka and Andhra Pradesh has been

effectively cracking down on theft of power (3168 cases of theft registered in special courts in Gujarat of which 1406 cases

saw prosecution); while U.P. & Tamil Nadu fares dismally in this regard – almost ZERO cases prosecuted

Rural households use power

meant for agriculture

Power for agriculture (pumps) in key agricultural states including U.P., Tamil Nadu, Andhra Pradesh, Haryana and Punjab is given at

ZERO or subsidised rates; farmers often use this power for normal household consumption and for commercial purpose. Separation of

feeders in these states is the need of the hour (Punjab and Haryana have already implemented this to an extent)

Financial Losses

Cross subsidization 23% of power consumed is by agriculture sector while only 9% of total revenues contribution at all-India level

Inefficient Utilities

Either the T&D infrastructure is outdated and inefficient or the cost of operations are too high due to high workforce and overheads.

Unbundling of utilities in some cases into generation, transmission and distribution may have resulted in more inefficiencies;

Loss tainted SEB like Tamil Nadu reported 17% CAGR in employee costs between FY13-15

Other qualitative factors

State Elections

States invariably provide round the clock power just before state elections leading to high power purchases, which subsequently leads

to higher than normal costs and higher losses. Once after the elections such states are forced to shed load to manage the financial

burden. Free power and cut in power tariffs are used to woo voters which push DISCOMs further into financial trouble

Mismanagement/ Corruption

Implementation of reform schemes takes a long time and requires iron-hand from the top officials in the DISCOMs; in many occasions

the top officials are changed too frequently or do not perform their duties effectively. Importantly, people holding senior level

positions lack either technical or commercial background due to which the sectoral issues cannot be sorted structurally

…however, challenges are Himalayan to solve the issue completely

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Overview of NTPC Standalone power plants

Capacity Configuration State CoD FY16

Standalone MW PLF, % Coal, MT

Coal Plants - Operational

Badarpur 705 3x95, 2x200 New Delhi 1973-81 40% 2

Barh 1,320 2x660 Bihar 2015 65% 3

Bongaigaon 250 1x250 Assam 2015 0% 0

Dadri Thermal 1,820 4x210, 2x490 U.P. 1991-2010 65% 7

Farakka 2,100 3x200, 3x500 West Bengal 1986-2011 70% 10

Kahalgaon 2,340 4x210, 3x500 Bihar 1992-2009 75% 11

Korba 2,600 3x200, 4x500 Chhattisgarh 1983-2010 88% 16

Mouda 1,660 2x500, 1x660 Maharashtra 2013 26% 1

Ramagundam 2,600 3x200, 4x500 Telangana 1983-2004 90% 9

Rihand 3,000 6x500 U.P. 1988-2010 81% 15

Simhadri 2,000 4x500 Chhattisgarh 2002-2012 86% 9

Singrauli 2,000 5x200, 2x500 Orissa 1982-1987 90% 13

Sipat 2,980 3x660, 2x500 Chhattisgarh 2007-2012 83% 14

Talcher Thermal 460 4x60, 2x110 Orissa 1995 94% 3

Talcher Kaniha 3,000 6x500 Orissa 1995-2005 90% 17

Tanda 440 4x110 U.P. - 82% 3

Unchahar 1,050 5x210 U.P. 1988-2006 75% 5

Vindhyachal 4,760 6x210, 8x500 M.P. 1987-2011 79% 21

Total 35,085 79% 159

Gas Plants - Operational Gas, MMSCMD

Rajiv Gandhi CCP 360 2x115 GT, 1x129 ST Kerala 1999 6% 0.1

Anta 413 3x89 GT, 1x153.2 ST Rajasthan 1990 32% 0.6

Auraiya 663 4x110 GT, 2x106 ST U.P. 1990 27% 0.9

Dadri Gas 830 4x130 GT, 2x154.5 ST U.P. 1992-1997 42% 1.8

Faridabad 432 2x143 GT, 1x144 ST Haryana 2000 32% 0.6

Gandhar 657 3x131 GT, 1x255 ST Gujarat 1995 20% 0.6

Kawas 656 4x106 GT, 2x110.5 ST Gujarat 1993 25% 0.7

Total 4,011 25% 5.2

Hydro, Solar Plants - Operational

Koldam Hydro 800 4x200 Himachal P. 2015 36%

Solar 360

NTPC Standalone 40,256

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Operations and Fuel Security - Standalone

79% 77% 78% 75% 73%

70% 66% 64% 62%

92% 91% 91% 88%

85% 83% 82% 80% 79%

68% 67%

78%

72% 65%

56%

36% 33%

25%

2008 2009 2010 2011 2012 2013 2014 2015 2016

India - Thermal PLF

NTPC - Coal Plants PLF

NTPC - Gas Plants PLF

3 5

6 11 12

9 11 16 10

120 130

136 137 141

155 161

167 162

5.9%

8.0%

4.9%

0.8%

2.7%

10.0%

3.6% 4.2%

-3.3%

2008 2009 2010 2011 2012 2013 2014 2015 2016

mn

to

nn

es

Domestic Coal Imports yoy growth

3 2

4 3 2

2

12 11

14 14 13

11

7 6

5

-7.2% -8.6%

29.1%

-0.8% -4.9%

-18.5%

-35.6%

-6.7%

-18.9%

2008 2009 2010 2011 2012 2013 2014 2015 2016

MM

SC

MD

Domestic (APM, KG D6) Gas Imported RLNG yoy

All power projects of NTPC are on a fixed returns basis (minimum 15.5% RoE on

regulated equity recoverable completely on achievement of 85% PAF) and have

firm long term fuel and power purchase agreements. As a result NTPC’s coal

power plants have comparatively better operational performance as can be seen

from the chart (PLFs). Due to fall in domestic gas production, NTPC’s gas power

plants have witnessed decline in PLFs (though they too earn fixed RoEs)

Long term fuel supply agreement exists with Coal India Limited (CIL) and Singreni

Collieries Company Limited (SCCL) for total Annual Contracted Quantity (ACQ) of

152.978 MMT & 11.2 MMT respectively for 33,515 MW (96% of existing capacity)

NTPC has Administered Price Mechanism (APM) gas agreements up to the year

2021 and Panna-Mukta-Tapti (PMT) gas agreements up to the year 2019 with

GAIL. The agreement for non-APM gas with GAIL is valid till November, 2016 and

is likely to be extended further. However, drop in these gas supplies have affected

the operations of gas power plants since FY12

Increased domestic coal supply, rationalisation of linkages and coal swapping

helped reduce dependence on imports in FY16

Source: Company, CEA, Spark Capital Research

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Generation and Cost of operations - Standalone

Despite a 7% CAGR in capacity additions in this period, the generation CAGR

is only 2% in this period; this is primarily due to tepid power demand growth and

lower offtake of power; also many plants of NTPC has witnessed lower PLFs

(Badarpur, Dadri, Farakka, Korba, Rihand, Tanda, Unchahar)

1.0

1.2 1.2

1.5

1.7

1.6

1.9 1.9 1.8

19%

5%

18% 18%

-10%

19%

2%

-7%


Rs./

un

it

Variable cost per unit - Coal Variable cost per unit - Oil yoy

1.8

2.3 2.0

2.7

3.1

4.0 3.6

4.3

3.1

26%

-12%

31%

15%

29%

-8%

17%

-27%


Rs./

un

it

Variable cost per unit - Gas Variable cost per unit - Naphtha yoy

1.8 2.0 2.1

2.5 2.8 2.7

3.1 3.1 3.1

0.0

1.0

2.0

3.0

4.0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Average Tariff per unit

Due to the cost-plus nature of the business (except Solar) the average tariff

(which is one of the lowest in the country) tracks the average variable cost.

Due to lower coal imports and cost savings, the variable cost of coal plants

drops in FY16

Source: Company, CEA, Spark Capital Research

24 24 28 25 23

20 13 12 9

201 207 219 221 222

232 233 241 239

6%

3%

6%

1% 1%

4%

1%

3%

-1%


bn

un

its

Generation - Coal Generation - Gas yoy growth

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Ongoing projects - Standalone

NTPC Standalone Capacity Configuration State Investment

Approval

Date*

CoD Delay

Plant MW Original Revised years

Coal

Bongaigaon - U2, U3 500 2x250 Assam NA May-11 Mar-17 5.8

Barh-I 1,980 3x660 Bihar NA Oct-13 Mar-18 4.4

Lara-I 1,600 2x800 Chhattisgarh Dec-12 Dec-16 Mar-17 0.2

North Karanpura 1,980 3x660 Jharkhand Feb-14 Feb-18 Mar-19 1.1

Kudgi 2,400 3x800 Karnataka Jan-12 Jan-16 Mar-17 1.2

Mouda-II - U2 660 1x660 Maharashtra Mar-12 Sep-16 Mar-17 0.5

Solapur 1,320 2x660 Maharashtra Mar-12 May-16 Mar-17 0.8

Gadarwara – I 1,600 2x800 M.P. Mar-13 Mar-17 Mar-18 1.0

Khargone 1,320 2x660 M.P. Feb-15 Mar-19 Mar-19 0.0

Darlipali-I 1,600 2x800 Odisha Feb-14 Feb-18 Sep-18 0.6

Unchahar-IV 500 1x500 U.P. Jul-13 Dec-16 Dec-17 1.0

Tanda-II 1,320 2x660 U.P. Sep-14 May-18 Mar-19 0.8

Hydro

Lata Tapovan 171 3x57 Uttarakhand Jun-12 - NA -

Tapovan Vishnugad 520 4x130 Uttarakhand - FY19 -

Rammam 120 3x40 West Bengal Sep-14 - FY20 -

Total 19,191

Reason for Delay

Coal

Bandhs, poor performance by civil contractors, delay in supply of material by

BHEL. Work halted due to violence and mass exodus of labour in FY12

Due to non-performance of SG & Auxiliaries agency, TPE, Russia, its contract

terminated in January, 2015 and been reawarded

-

-

-

-

Delay in steam generator by BGR. Delay in Right of Use (RoU) for Raw water

pipeline. Delay in readiness of civil fronts by IVRCL.

-

-

-

-

-

Hydro

All the construction activities stopped at Lata Tapovan since 8th May, 2014 in

line with Hon’ble Supreme Court order dated 7th May, 2014

-

-

* MOEF clearance date is taken as Investment Approval date. Source: Ministry of Power, Spark Capital Research Most projects see an average delay of 1 year which is the reason for CWIP

accumulation and lower return metrics (RoE) of the Company

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Overview of Subsidiaries, JVs and Associates

Capacity Configuration State

Entity MW NTPC's

Stake Partner Fuel

Subsidiaries - Operational

Kanti Bijlee Utpadan 610 2x110, 2x195 Bihar 65% BSEB Coal

Bhartiya Rail Bijlee 250 1x250 Bihar 74% Ministry of Railways Coal

Subsidiaries - Under Construction

Bhartiya Rail Bijlee 750 3x250 Bihar 74% Ministry of Railways Coal

Total 1,610

JVs/ Associates - Operational

NTPC - SAIL Power Company 814 2x120, 1x574 Chhattisgarh 50% SAIL Coal

NTPC -Tamilnadu Energy Company 1,500 3x500 Tamil Nadu 50% TANGEDCO Coal

Ratnagiri Gas and Power 1,967 3x740 Maharashtra 26% GAIL Gas

Aravali Power Company 1,500 3x500 Haryana 50% Indraprastha Power Coal

JVs/ Associates - Under Construction

Meja Urja Nigam 1,980 3x660 U.P. 50% UPRVUNL Coal

Nabinagar Power Generating

Company 1,320 2x660 Bihar 50% BSEB Coal

Total 9,081

Project facing delays due to slow

progress of works by main plant civil

agency M/s ERA resulting in delay in

handing over civil fronts to erection

agencies. Also, agitation by villagers has

resulted in patches of land unacquired

because of unwillingness of people to

accept compensation. Also, there is

Financial crunch faced by CHP vendor

(Techpro)

Project is facing delays as supply of

boiler material by M/s BGR is delayed

due to non-settlement of Steam

Generator contract between BGR and

Hitachi.. Slow progress of main plant civil

works. Delay in land Acquisition for Make

up Water Pipeline and Railway Siding

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Capacity Additions

1,740

1,000 1,560

2,490 2,820

4,259

1,835 1,290

2,255

5,598 5,980

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Addition to Installed Capacity, MW

Standalone JVs/ Associates Total

13,600MW Standalone

Capacity additions FY08-16

19,249MW Overall Capacity

additions FY08-16

17,869MW Standalone

Capacity additions FY16-20

21,509MW Overall Capacity

additions FY16-20

13,690MW Standalone Commercial

additions FY08-16

17,410MW Overall Commercial additions FY08-16

17,401MW Standalone Commercial

additions FY16-20

20,381MW Overall commercial additions FY16-20

500

2,000 1,490 1,600

1,160

4,830

2,675

1,195

1,960

4,470

5,980

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Addition to Commercial Capacity, MW

Standalone JVS/ Associates Total

With 23.2GW of projects under execution (excluding Solar) worth ~Rs. 1,400bn, Company is likely to witness a quantum jump in

FY17E and FY18E in capacities that are likely to be installed and commercially declared operational

Similar amount of capacity addition that the Company achieved from FY08-16 (in 9 years) is likely to be added in half the time

taken. We expect a 11% CAGR in installed capacity for the period FY16-20E

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

FY16-20 5%

FY16-20 9%

Operational and Financial Projections

241.1 239.5 252.9

284.6

324.6

364.9

-1%

6%

13%

14% 12%

FY15 FY16 FY17E FY18E FY19E FY20E

bn u

nits

Generation - Standalone yoy

260.5 263.4 270.8

310.7

362.6

404.4

1% 3%

15%

17%

12%


bn u

nits

Generation - Group yoy

180 173 182

207

241

269

162 158 165 185

210

236


mn tonnes

Coal Consumed - Group Coal Consumed - Standalone

12.5 12.4

10.4

12.3

15.2

17.5

-6%

0%

-17%

19%

23%

15%


Rs./

share

Standalone Earnings per share yoy

99 108

114 122

133

147

-5%

9%

6%

7%

9% 10%


Rs./

share

Standalone Book Value per share yoy

FY16-20 8%

100 108

114 122

133

147

-6%

9%

5%

7%

9% 10%


Rs./

share

Group Book Value per share yoy

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Ongoing Projects (Rs. bn) New Projects (Rs. bn) Total (Rs. bn)

1,305 318 1,624

CWIP at Mar’16 New CAPEX New CAPEX New CAPEX

734 572 318 890

For the standalone entity there are

about Rs. 1,305bn of ongoing

projects as at March 2016. Negating

the CWIP of Rs. 734bn we arrive at a

CAPEX opportunity of Rs. 572bn for

the future

Apart from this, there are ~Rs. 318bn

worth of visible new projects

(Telangana, Patratu, Anantapur Solar

etc.) that will be taken-up in the near

term. Hence Rs. 890bn is the

minimum CAPEX opportunity that the

Company has for the next 4 years.

There is an additional Rs. 318bn of

projects on-going with the

subsidiaries apart from this

We expect the Company to achieve

the Rs. 300bn CAPEX target for

FY17E

With this quantum of CAPEX and

schedule of projects to be completed

we expect FY17 and FY18 to witness

quantum jump in commercial

operations of projects

The high growth in capitalisation of

power assets in the next few years is

likely to lead to higher growth in

returns

140 159

199 217

232 260

301

334

40% 14%

25%

9% 7% 12%

16% 11%

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Rs. b

n

CAPEX, Rs. bn yoy growth

CAPEX and Capitalization - Standalone

111 124 139

153 168

181

254

298

31%

11% 12% 10% 10%

8%

40%

17%

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Rs. b

n

Capitalisation yoy growth

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

1,110,258 1,263,973

1,472,824 1,705,225

1,926,612 2,202,387

2,503,464

2,837,897 3,102,830

3,333,463

34%

35% 30%

31% 33% 33% 29%

25% 21% 17%

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Rs. m

n

Gross Block CWIP % of CWIP of Total Fixed Assets

Given the commercialisation of large

amount of capacities in the medium

term we expect reduction in CWIP

going forward

As a result we expect the proportion

of CWIP in total fixed assets to drop

<20% in the next 4 years from the

current 33%

With reduction in CWIP and increase

in leverage we expect an increase in

the standalone level RoEs in the

medium term

Financials & Balance Sheet metrics - Standalone

14.8%

12.2%

16.4%

13.2% 12.3% 12.0% 9.4% 10.4%

11.9% 12.5%


RoE, %

431,877 502,789 581,461 671,697 859,953 930,977 1,128,296 1,372,326 1,543,538 1,638,707 678,923 732,912

803,875 858,153

816,574 887,820 940,068

1,008,253 1,100,221

1,211,141 0.6 0.7 0.7 0.8

1.1 1.0 1.2

1.4 1.4 1.4


Rs. m

n

Debt Net Worth Debt/ Equity

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

NTPC – SoTP Valuation

With one of the best credit ratings in the industry, NTPC enjoys a low cost of capital overall, with an RoE

of ~12% we attribute a 1.3x multiple on our FY18E Book Value at standalone to value it (we are not

attributing a higher multiple due to lower RoE)

NTPC Stake Value to NTPC per share

% Rs. mn Rs.

NTPC - Standalone 100% 1.5x FY18E BV 1,310,729 1,310,729 159

Subsidiaries Valuation Method Equity Value Value to NTPC per share

NTPC Vidyut Vyapar Nigam 100% 5x FY18E EV/ EBITDA 7,381 7,381 1

Kanti Bijlee Utpadan Nigam 65% 0.5x Investment 5,308 3,450 0

Bhartiya Rail Bijlee Company 74% 1x Investment 15,846 11,726 1

28,535 22,557 3

JVs/ Associates Valuation Method Equity Value Value to NTPC per share

NTPC - SAIL Power Company 50% 1x Investment 9,805 4,903 1

NTPC -Tamilnadu Energy Company 50% 1x Investment 26,512 13,256 2

Ratnagiri Gas and Power 29% 0.5x Investment 19,096 4,872 1

Aravali Power Company 50% 1x Investment 25,577 12,789 2

Meja Urja Nigam 50% 1x Investment 10,827 5,414 1

Nabinagar Power Generating Company 50% 1x Investment 10,223 5,111 1

Others 4,607 1,727 0

106,648 48,071 6

Total NTPC 1,445,912 1,381,357 168

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

PGCIL - 1 year forward P/E trend

Source: Bloomberg

NTPC - 1 year forward P/E trend

Source: Bloomberg

PGCIL - 1 year forward P/BV trend

Source: Bloomberg

NTPC - 1 year forward P/BV trend

Source: Bloomberg

1 year forward market multiples

6x

8x

10x

14x

16x

12x

0

50

100

150

200

250

Ap

r-11

Aug

-11

Dec-1

1

Ap

r-12

Aug

-12

Dec-1

2

Ap

r-13

Aug

-13

Dec-1

3

Ap

r-14

Aug

-14

Dec-1

4

Ap

r-15

Aug

-15

Dec-1

5

Ap

r-16

Aug

-16

CM

P

0.5x

1.0x

1.5x

2.0x

2.5x

0

50

100

150

200

250

Ap

r-11

Aug

-11

Dec-1

1

Ap

r-12

Aug

-12

Dec-1

2

Ap

r-13

Aug

-13

Dec-1

3

Ap

r-14

Aug

-14

Dec-1

4

Ap

r-15

Aug

-15

Dec-1

5

Ap

r-16

Aug

-16

CM

P6x

8x

10x

14x

16x

12x

0

50

100

150

200

250

300

Ap

r-11

Aug

-11

Dec-1

1

Ap

r-12

Aug

-12

Dec-1

2

Ap

r-13

Aug

-13

Dec-1

3

Ap

r-14

Aug

-14

Dec-1

4

Ap

r-15

Aug

-15

Dec-1

5

Ap

r-16

Aug

-16

CM

P

0.5x

1.0x

1.5x

2.0x

0

50

100

150

200

250

Ap

r-11

Aug

-11

Dec-1

1

Ap

r-12

Aug

-12

Dec-1

2

Ap

r-13

Aug

-13

Dec-1

3

Ap

r-14

Aug

-14

Dec-1

4

Ap

r-15

Aug

-15

Dec-1

5

Ap

r-16

Aug

-16

CM

P

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Long gestation

period of power

projects and

potential delays

Power projects have gestation periods between 3-6 years (3 years for coal, ~5 years for hydro). Due to the capital

intensive nature of such projects the equity capital of the Company gets locked-up for long periods of time without

earning returns. This results in the overall return metrics of the Company being lower than actual returns (for example, in

FY16, the adjusted RoE was 18.7% at standalone level – adjusting for under construction projects – while the reported

RoE was 12%)

Regulated nature of

the business can be

a double edged

sword

Regulated returns (fixed RoE model) is periodically amended by the central commission CERC; while there were

significant changes in the regulations for the period FY14-19 (energy charges based on GCV of coal changed from “as

fired basis” to “as received basis”, calculation of incentives on PLF rather than on PAF etc.) the RoE was kept unchanged

at 15.5%. There is a threat that it could be altered which can impact the Company negatively when it is amended in

FY19E

Investments in non-

core businesses

and geographies

Given that NTPC is the principal power generating entity for the Country and due to the fact that it is owned by the

government, Company has ventured into several “pet projects” over the years (many of which have not succeeded). For

example, there is a proposal to build a 500MW power plant in Sri Lanka, a 1320MW power plant in Bangladesh, a

venture to revive fertilizer plants of Fertilizer Corporation of India, a plan to develop 10GW of solar capacities (in-line with

Government’s intentions) which do not work on the fixed RoE model etc.

Regulatory tangle

w.r.t to measuring

GCV of coal

There was an adverse order issued by CERC (subject to final decision of the Hon’ble High Court of Delhi) on the issue of

‘point of sampling’ for measurement of GCV of coal ‘as received’, that samples for measurement of coal ‘as received’

basis should be collected from loaded wagons at the generating stations instead of the Company’s current method of

measuring it at the secondary crusher level. If the High Court order upholds CERC’s judgement Company needs to incur

CAPEX to comply with it; also Company may have to adjust its tariff lower in the future for any benefit enjoyed from FY14

due to sampling the coal at secondary crusher level

Costs to comply

with the new

emission norms

Revised standards for coal-based Thermal Power Plants in the country aims to minimizing pollution and to be

implemented in a phased manner by 2019. Thermal power plants are categorised into 3 categories with different sets of

emission limits, namely those:- (i) Installed before 31st December, 2003 (ii) Installed after 2003 upto 31st December,

2016 and (iii) Installed after 31st December, 2016. Since close to 25% of Company’s coal plants are older than 2003 it

may need to incur high amount of CAPEX to reduce SOx and NOx (though Company has requested to the Ministry for

extension of timelines)

Concerns

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Financial Summary – Standalone

Standalone Key metrics

Rs. mn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

Profit & Loss Growth

Revenues 732,461 705,068 727,838 852,814 Revenues 2% -4% 3% 17%

EBITDA 160,856 175,131 191,019 237,888 EBITDA -10% 9% 9% 25%

Other Income 21,163 11,892 8,573 9,534 PAT -6% 0% -17% 19%

Depreciation 49,117 54,253 55,092 71,018 Margins

EBIT 132,903 132,770 144,500 176,404 EBITDA 22% 25% 26% 28%

Interest 27,436 32,303 37,633 49,617 PAT 14% 15% 12% 12%

PBT 105,467 100,587 106,867 126,787

PAT 102,909 102,428 85,494 101,430 Performance ratios

Balance Sheet RoA (%) 5.5% 5.0% 3.8% 4.0%

Net Worth + MI 816,574 887,820 940,068 1,008,253 RoE (%) 12.3% 12.0% 9.4% 10.4%

Total debt 859,953 930,977 1,128,296 1,372,326 Post Tax RoCE (%) 7.8% 7.5% 5.7% 6.2%

Other Non Current Liabilities 52,598 64,711 64,711 64,711 Total Assets Turnover (x) 0.4 0.4 0.3 0.3

Long term provisions 11,157 4,364 4,364 4,364 Fixed Assets Turnover (x) 0.6 0.5 0.4 0.4

Total Networth & Liabilities 1,740,282 1,887,871 2,137,439 2,449,655 Working capital Turnover (x) 5 18 17 9

Gross Fixed assets 1,284,775 1,468,394 1,772,581 2,124,248 Financial stability ratios

Net fixed assets 788,491 916,298 1,165,392 1,446,042 Net Debt to Equity (x) 0.9 1.0 1.2 1.3

CWIP 642,141 736,170 733,060 715,825 Current ratio (x) 1.6 1.2 1.2 1.3

Investments 71,541 79,495 79,495 79,495 Inventory Days 32 38 31 25

Loans and Other Long Term Assets 95,041 116,765 116,765 116,765 Debtor Days 32 40 35 28

Inventory 74,530 71,925 53,218 62,356 Creditor days 31 30 27 24

Receivables 76,044 78,439 59,195 69,359 Working Capital Days 33 48 39 28

Cash and bank balances 128,788 44,063 47,209 82,501 Valuation metrics

Loans and other receivables 94,273 103,033 121,468 141,735 Fully Diluted shares (mn) 8,245 8,245 8,245 8,245

Current liabilities 230,565 258,318 238,365 264,425 Fully diluted M. Cap (Rs.mn) 1,278,047

Net current assets 143,069 39,142 42,725 91,525 Fully Diluted EPS (Rs.) 12.5 12.4 10.4 12.3

Total Assets 1,740,282 1,887,869 2,137,437 2,449,652 P/E (x) 12.4 12.5 14.9 12.6

Cash Flows EV (Rs.mn) 2,009,212 2,164,961 2,359,133 2,567,873

Cash flows from Operations 142,347 145,036 177,782 208,555 EV/ EBITDA (x) 12.5 12.4 12.4 10.8

Cash flows from Investing (145,626) (184,227) (301,077) (334,433) Book Value, Rs./ share 99.0 107.7 114.0 122.3

Cash flows from Financing (18,781) (44,364) 126,441 161,169 Price to BV (x) 1.6 1.4 1.4 1.3

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Financial Summary - Consolidated

Consolidated Key metrics

Rs. mn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

Profit & Loss Growth

Revenues 806,219 787,054 825,300 956,787 Revenues 2% -2% 5% 16%

EBITDA 175,122 191,631 207,753 255,276 EBITDA -11% 9% 8% 23%

Other Income 20,789 12,340 9,067 10,119 PAT -12% 2% -19% 18%

Depreciation 55,646 61,534 62,973 80,872 Margins

EBIT 140,265 142,437 153,847 184,523 EBITDA 22% 24% 25% 27%

Interest 35,704 41,513 49,295 61,136 PAT 12% 13% 10% 10%

PBT 104,561 101,033 104,541 123,376

PAT 99,922 101,622 82,393 97,292 Performance ratios

Balance Sheet RoA (%) 4.8% 4.4% 3.3% 3.5%

Net Worth + MI 829,819 900,893 948,100 1,012,938 RoE (%) 11.8% 11.9% 9.0% 10.0%

Total debt 1,022,520 1,120,306 1,317,025 1,559,256 Post Tax RoCE (%) 7.4% 7.1% 5.5% 5.8%

Other Non Current Liabilities 61,416 75,619 75,619 75,619 Total Assets Turnover (x) 0.4 0.4 0.4 0.4

Long term provisions 11,434 4,694 4,694 4,694 Fixed Assets Turnover (x) 0.6 0.5 0.4 0.4

Total Networth & Liabilities 1,925,189 2,101,511 2,345,438 2,652,506 Working capital Turnover (x) 5 18 25 13

Gross Fixed assets 1,443,601 1,632,139 1,946,396 2,360,288 Financial stability ratios

Net fixed assets 918,524 1,044,959 1,303,008 1,642,793 Net Debt to Equity (x) 1.1 1.2 1.3 1.5

CWIP 675,547 815,497 802,771 723,767 Current ratio (x) 1.5 1.1 1.1 1.2

Investments 141 148 7,843 13,957 Inventory Days 32 37 31 25

Loans and Other Long Term Assets 183,627 198,320 198,320 198,320 Debtor Days 36 45 41 35

Inventory 79,725 79,591 61,572 71,189 Creditor days 33 32 30 27

Receivables 92,499 101,739 85,813 96,979 Working Capital Days 35 50 43 33

Cash and bank balances 142,516 53,933 46,959 72,959 Valuation metrics

Loans and other receivables 103,176 110,299 129,704 150,135 Fully Diluted shares (mn) 8,245 8,245 8,245 8,245

Current liabilities 270,573 302,977 290,552 317,594 Fully diluted M. Cap (Rs.mn) 1,278,047

Net current assets 147,344 42,585 33,495 73,668 Fully Diluted EPS (Rs.) 12.1 12.3 10.0 11.8

Total Assets 1,925,189 2,101,509 2,345,437 2,652,506 P/E (x) 12.8 12.6 15.5 13.1

Cash Flows EV (Rs.mn) 2,158,051 2,344,420 2,548,113 2,764,344

Cash flows from Operations 147,459 154,104 196,778 225,127 EV/ EBITDA (x) 12.3 12.2 12.3 10.8

Cash flows from Investing (158,345) (206,407) (309,226) (341,002) Book Value, Rs./ share 99.6 108.2 114.1 122.0

Cash flows from Financing (14,745) (35,206) 114,179 147,850 Price to BV (x) 1.5 1.4 1.3 1.3

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Appendix – Comparison with PGCIL

Comparison to PGCIL

Unit NTPC PGCIL

Gestation Period of Projects years 3-5 years 2 years

RoE - FY16 % 12% 15%

D/E - FY16 x 1.3 2.5

1 yr fwd P/E x 12.9 10.1

1 yr fwd P/BV x 1.2 1.7

CWIP - FY16 Rs. mn 813,317 404,760

CWIP as % of Fixed Assets % 44% 27%

CAPEX - 2016 Rs. mn 259,596 225,840

Capitalisation - 2016 Rs. mn 180,592 317,880

CAPEX 2016-20E Rs. mn 1,323,050 915,620

Capitalisation 2016-20E Rs. mn 957,661 1,209,582

EPS CAGR FY16-20E x 10% 19%

Book Value CAGR FY16-20E x 8% 15%

PEG Ratio x 1.3 0.5

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Disclaimer

Spark Disclaimer

Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and

infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We

have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of

time.

Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered

with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure

advisory services.

This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.

This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should

be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of

companies referred to in this document.

Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies

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material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.

Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this

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investment banking or other business from, any company referred to in this report.

This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark

Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information.

Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective

directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents

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or reliance on this report.

Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon

CMP

Rs. 153

Target

Rs. 170

Rating

ADD

NTPC

Disclaimer (Cont’d)

Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,

Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of interest statement Yes/No

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

Spark Capital’s ownership/any other financial interest in the company covered No

Associates of Spark Capital’s ownership more than 1% in the company covered No

Any other material conflict of interest at the time of publishing the research report No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

Whether Research Analyst has served as an officer, director or employee of the subject company covered No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research

analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.

Additional Disclaimer for US Institutional Investors

This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under

the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange

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