Vol. 02/09-10 May 11, 2009 Analyst: Abhishek Gupta abhishekg@bajajcapital.com Reviewed by: Alok Agarwala aloka@bajajcapital.com B U Y CMP (08.05.09) : Rs. 189.80 Target : Rs. 225.00 Upside Potential : 19% Horizon : 6-8 mths Brief Profile NTPC Limited NTPC is India s largest power generation company with total installed capacity of more than 30000MW. NTPC has around 19% share in the total power generation capacity of the country and generates 29% of the total generation. The company has a mix of coal and gas based plants with almost 85% of its plants operating on Coal. NTPC has always operated on significant higher Plant Load Factor (PLF) than rest of India. NTPC plans to add 22.4GW of installed capacity during the 11 th five year plan (2007-12) which accounts for 28.5% of the total installed capacity planned for the plan period. The company is a safe and defensive bet looking at the industry in which it is and due to its near monopoly status in a power deficit country. Key Investment Arguments Operational performance: Operational performance of the company for FY09 has remained strong during the period with company achieving 91.1% Plant load Factor (PLF) and 92.5% Plant Availability Factor (PAF)in 10 out of 15 coal-based power plants. There was a marginal fall in PLF compared to 92.2% in the previous year. Realization per unit, however, improved by 10.8% for 2008-09. Industry House Power Generation Govt of India CMP 08.05.09 (Rs) 189.8 Mkt. Cap (Rs cr) 156498.8 Face Value (Rs.) 10.0 250 200 150 100 50 100 80 60 40 20 52 week (Rs) High 205.50 Low 113.0 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 0 Book value (Rs) 65.5 P/BV (ttm) 2.9 Generation (BU) LHS PLF (%) (RHS) P/E Ratio (ttm) 21.1 Last Dividend (%) Avg. daily volume 35.0 1628645 95 90 85 80 75 70 74.8 87.5 73.6 87.5 89.4 92.2 91.1 76.8 78.6 77.1 65 60 55 50 1997-98 1998-99 1999-00 2000-01 All India PLF 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 NTPC PLF 2008-09 Robust Top-line (Provisional): For FY09, NTPC registered a robust Top-line growth of 14% at Rs. 42182cr. compared to Rs. 36946 for corresponding period of previous year. Strong top line growth came on the back of better PLF and PAF. For FY09 realization per unit was at
Rs. 2.04/ unit v/s Rs. 1.84/unit in FY08, a growth of 10.8% YoY. Bottom line growth remained at 5.6% during FY2009. It was impacted by the increase in employee cost on account of implementation of sixth pay commission recommendations. Better 4QFY09 (provisional): NTPC reported a strong 30% PAT growth for the fourth quarter to Rs 1,739 crore in line with Market estimates. Sales for the quarter, at Rs 11,704 crore, were 10% higher on y-o-y basis. The company, which had posted a 10% decline in profits in the first half of the year, saw a turnaround in the second half. Capital expenditure: The Company incurred a capex of Rs 12,686 crore on capacity addition in FY09, which is a sharp increase of 45% over last year, after a lull in the previous two years. In addition, it spent Rs 2,500 crore on projects being executed by its joint ventures and subsidiaries, taking the total capex for FY09 to Rs 15,183.5 crore at the group level. The capex target for next year is set even higher at Rs 24,525.8 crore at the group level. NTPC plans to add 3.3GW of fresh generating capacity during FY10. NTPC has tied up with domestic banks for new loans of Rs. 11,575 crore including Rs 10,000 crore from Power Finance Corporation and Rs 1,000 crore from LIC. NTPC is further negotiating Rs 8,500-crore loan with a public sector bank. The company's total domestic borrowing stood at Rs 20,889.4 crore. The above arrangements will help the company in meeting the capex requirement for various projects. After commissioning of 1000MW of Power during the year FY09 NTPC has crossed 30000MW of installed capacity. New Projects planned Capacity Installation Size (MW) Estimated Cost Project type Rs. cr. 1 Dadri, Uttar Pradesh 980 5135 Coal 2 Korba Chattisgarh 500 2450 Coal 3 Sipat, Chattisgarh 1980 8324 Coal 4 Farakka, West Bengal 500 2570 Coal 5 Kahalgaon, Bihar 500 2570 Coal 6 Simhadri, Andhra Pradesh 1000 5000 Coal 7 Barh I, Bihar 1980 8693 Coal 8 Bongaigon, Assam 750 3750 Coal 9 Barh II, Bihar 1320 5940 Coal 10 Mauda, Maharashtra 1000 5529 Coal 11 Rihand, Uttar Pradesh 1000 5529 Coal 12 Koldam 800 4528 Hydro 13 Lohari Nagpala 600 2898 Hydro 14 Tapovan Vishnugarh 520 2813 Hydro 15 Nabinagar 1000 5529 Coal 16 Vallur 1000 5529 Coal 17 Vidhyachal 1000 5529 Coal Existing Capacity NTPC Owned No. of Plants Capacity (MW) Coal 15 23,895 Gas/Liquid Fuel 7 3,955 Total 22 27,850 Owned By JVs Coal & Gas 4 2,294 Total 26 30,144 Bajaj Capital Centre for Investment Research 2/5
NTPC vs. BSE Sensex Defensive stock: The Company has outperformed the markets during the last one year. As on 31 th March 2008 the company has robust cash reserves of Rs. 15000cr to support its expansion plans. The New CERC tariff regulation norm also benefits the company marginally; NTPC will also gain from the increase in cap on Return on Equity (ROE) of central power utilities from 14% to 15.5% (16% in case of projects completed in the stated time). Smoothening of Fuel worries NTPC has been facing a drop in fuel supplies at a few of its plants. To counter the above, the company plans to increase its coal imports. This will reduce the dependence on a single coal supplier and thus help to meet the domestic coal shortages. NTPC has already moved towards linking the coal prices with global indices from an earlier fixed price system. This way the company will gain from the fall in the coal prices. Shareholding Pattern 31-Mar-09 (%) Promoters 89.5 Indian 89.5 Foreign 0.0 Non Promoters 10.5 FIIs/FDI 3.6 FI/MF 3.4 Public 3.5 Total 100.0 Gas Supplies: NTPC has already initiated the possible tie up with Reliance Industries for KG-D6 Gas. Such tie up will enable the company to get 2.67 mmscmd of gas. It will also help NTPC to reduce its dependence on coal and the costlier spot gas. Coal Supply: NTPC is in negotiation with Coal India (CIL) for increase in the base requirement of coal. The negotiation also includes a penalty clause where in supply of less than contracted requirement will trigger a penalty clause. This will help NTPC in getting improved coal supplies from Coal India Limited. JV s and MoU s: NTPC entered into a Memorandum of Understanding (MoU) with Nuclear Power Corporation of India (NPCIL) in FY2009 to develop 2000MW of Nuclear power by 2017. NTPC will hold 49% in the proposed JV with NPCIL. NTPC has also signed 50:50 JV with BHEL to take up Engineering Procurement and Construction (EPC) and manufacturing of equipment required for power plants and other power infrastructure projects. NTPC also entered into agreement to form JV / SPV with CIL, RINL and Sail India for securing metallurgical coal and thermal coal assets from overseas and to use their domain knowledge for international mining business development. Contract Mining: NTPC plans to delve into contract mining, the company is likely to make a separate entity for such business, the new entity will provide consultancy and mining services to companies which have been allotted captive mines. NTPC is in talk with BEML to form a JV to offer these services. The government has so far allocated 198 captive coal blocks with estimated reserves of over 42 billion tonnes to various public and private sector companies. NTPC and BEML are planning to exploit this opportunity as most of these companies have no experience in coal mining. Of the 198 captive coal blocks allocated by the government so far, 22 have gone to Central government undertakings, 78 to state government undertakings and another 98 to private sector companies. All these would provide business opportunity for the proposed venture. It would also help to check imports of coal that has reached around 50 million tonne annually. NTPC alone plans to import 12.5 million tonne coal in 2009-10. Key Concerns NTPC added 1000 MW of Power during FY09. The company plans to add 3.3 GW of Power during FY10. It also targets to contribute 28.5% (22.4GW) of the installed capacity planned (78.6GW) under 11 th five year plan by 2012. Looking at the track record of the company it will be difficult for NTPC to achieve the set target. Bajaj Capital Centre for Investment Research 3/5
The company is also facing supply constraints for coal. However with NTPC looking at importing more coal from outside as well as plans to make agreement with RIL for Gas supply from KG basin, the PLF will see a positive change thus increasing the efficiency of existing plants. Conclusion NTPC trades at a premium compared to its peers due to a better growth potential and a near monopoly status. Increase in cap on Return on Equity (ROE) from 14% to 15.5% and 16% for projects completed on time, is also a positive for the company. NTPC will benefit directly from such changes. On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 189.80. If everything goes well, the price is likely to appreciate to Rs.225, within 6-8 months, translating into a gain of about 19%. Financials (Rs. in crore) 9M 200812 200803 200703 200603 200503 200403 200303 Share Capital 8245.5 8245.5 8245.5 8245.5 8245.5 7812.5 7812.6 Networth 54012.0 49253.5 45399.5 42113.7 36087.6 31539.9 5 yr CAGR % Revenues 30478.0 37302.4 32817.3 26904.9 22732.4 18868.4 19047.5 14.4 EBITDA 10491.3 14317.0 12964.9 10666.5 9788.9 11282.6 6274.7 17.9 APAT 6088.0 7423.0 6871.8 6500.1 5822.5 4404.7 3600.8 15.6 Operating Cash Flows 10171.1 8065.3 5972.0 5099.8 5744.3 4740.2 Dividend % 35.0 32.0 28.0 24.0 13.9 9.1 CEPS (Rs.) 11.0 10.4 9.2 9.1 9.2 6.5 11.0 EPS (Rs.)* 7.4 8.4 7.9 6.7 6.7 6.6 4.6 12.9 Debt-Equity Ratio 0.50 0.47 0.43 0.42 0.42 0.41 Interest Coverage Ratio 6.1 6.3 5.5 4.7 4.5 2.5 4.8 RoNW % 14.4 14.5 14.9 14.9 13.0 12.0 EBITDA Margin % 34.4 38.4 39.5 39.6 43.1 59.8 32.9 APAT Margin % 20.0 19.9 20.9 24.2 25.6 23.3 18.9 Total Asset Turnover Ratio 0.4 0.4 0.4 0.4 0.3 Fixed Asset Turnover Ratio 1.4 1.3 1.2 1.0 0.9 Price/Sales 3.8 PE Multiple 21.1 P/BV Ratio 2.9 * EPS for Nine months ended 200812 is absolute and not annualized. Bajaj Capital Centre for Investment Research 4/5
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