“Financial Analysis & Valuation of Public Sector Power Companies

(NTPC and NHPC)”

Nitin Jaggi

PGDM-191

Flow Of Presentation

About Trustline Sec Ltd Power Sector Overview Overview Of NTPC Valuation Of NTPC Overview Of NHPC Valuation Of NHPC Conclusion Recommendations Learnings

• Trustline made a humble beginning in 1989

• Trustline has been operating for over 20 years in the Indian Financial Arena, offering

equity, currency and commodities broking services to over 100,000 clients at over 600

locations, through own branches and business partners.

• Trustlines’ vision is to be the most preferred Broking House of India

• TRUSTLINE GROUPS’ foray into the commodity, currency, and depository

• MEMBER : NSE,BSE,MCX-SX,NSDL,CDSL

: MCX, NCDEX & NMCEIL

• Group Companies

• TRUSTLINE SECURITIES LIMITED

• TRUSTLINE COMMODITIES (P) LTD

• TRUSTLINE INSURANCE BROKERS (P) LTD

• TRUSTLINE REAL ESTATES (P) LTD

• TRUSTLINE ACADEMY

Trustline Securities Ltd

Vision

• To provide world class investment solution in simplified form to the investing population.

• To provide the most modern technology platform so as to enable investors perform hassle free

transactions at minimum impact cost.

• To empower investors with opportunities to invest across various asset classes to benefit from

the dynamism of the market.

Mission

• To empower individual investors by providing simple investments ideas through investment

research and thus lead them to a path of wealth creation by investing in the securities market

Vision & Mission

1. Equity

2. Commodity

3. Mutual fund

4. Currency

SERVICES OFFERED BY THE COMPANY

Edge over competitors

1. A vast network of offices giving it pan India presence with more than 400+ branches.

2. Vast offering of Services.

3. Real-time risk monitoring through RMS(Risk Management System) with latest

technology.

4. Experienced and highly qualified Research Analysts and Relationship Managers.

5. Latest MF News & Fund Manager views & tools to help select the right scheme.

6. Indivitual portfolio analysis and suggestions.

7. Last but not the least ,most competitive prices in every segment across the industry.

5. Insurance

6. Portfolio Management Services

7. Education(Education First, Investment Second)

Competitors and Pricing..

S.NoNAME OF BROKING

HOUSESINTRADAY

DELIVERY BASED

TRADING

1 Indiabulls 0.03 0.3

2 Religare 0.03 0.3

3 India Infoline 0.02 0.2

4 Motilal Oswal 0.025 0.25

5 Share Khan 0.02 0.2

6 HDFC securities 0.08 0.75

7 ICICI securities 0.08 0.75

8 Kotak Securities 0.05 0.5

9 Trustline 0.01 0.1

Power Sector Overview

43%

30%

27%

Central State Private

1. Demand for electrical energy is increasing at a rate of 8 to10 per cent

annually

2. All India Capacity reached 207876 MW

3. Gross annual generation of the country was 876.89 Billion Units (BUs)

(including Bhutan import) showing a growth rate of 8.11% over last year.

4. The energy requirement during the year 2012-13 was 937.20 BUs.

5. Energy deficit on a year-on-year basis in 2012-13 at 8.5%.

6. Peak load demand, increased by 6.31% thereby increasing peak load

defi cit to 10.6% in 2012-13 from 9.8% in the previous year. (Source:

CEA)

7. During 2013-14 India’s GDP is expected to grow at 6.1% to 7%.

8. In order to sustain the growth in GDP and bring it around 9%, India

needs to add power generation capacity commensurate with this pace

since growth of power sector is strongly co-related with the growth in

GDP and going forward it is expected that supply will create further

demand.

9. By FY17 demand will Cross 1403 Billion Units(CEA).

Consumption

Industrial>Residential>Agriculture>Commercial

Year 2007-08 2008-09 2009-10 2010-11 2011-12

Demand(mu) 737,052 777,039 830,594 861,591 937,199

Supply(mu) 664,660 691,038 746,644 788,355 857,886

Deficit(%) -9.80% -11.10% -10.10% -8.50% -8.50%

2007-08 2008-09 2009-10 2010-11 2011-120

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Demand

Supply

Power Demand/Supply Overview

Challenges Of Power Sector:1. New Project Management and Execution.

2. Ensuring availability of fuel quantities and qualities

3. Lack of initiative to develop large coal and natural gas resources present in India,

4. Land acquisition

5. Environmental clearances at state and central government level

6. Training of skilled manpower to prevent talent shortages for operating latest technology plants.

7. Huge losses during Transmission and Distribution.

8. Poor Financial health of state electricities boards.

9. Tariff decision highly regulated by State Gov.’s.

57.10%

9.09%0.58%

18.90%

2.30% 12.03%

Fuel Based Allocation

Coal Gas Diesel Hydro Nuclear Renewable

VALUATION

• Maharatna Company ,Incorporated as a Government company in 1975; amongst 7 Maharatna GoI companies,

• Vision

To be the world’s largest and best power producer, powering India’s growth.

• As of December 31, 2012 total installed power generation capacity of 39,674MW whereas 17,909MW of capacity, under construction

• Accounts for 18.5% of India’s total installed capacity• NTPC generated 220 billion units of electricity which is 27.4% of India’s total

generation in FY12.• 11th Five Year Power Plan of addition of 9220 MW of Capacity was achieved.• 12 th Five Year Power Plan Target of Addition of 11148 MW.• At the 337th position in the Forbes Global 2000 list of the world’s largest

Companies for the year 2012, and 3rd in Asia among electricity utilities.• Ranked 3rd in The Economic Times Best Employers in India 2012 Study of Best

Employers in the Country

NTPC

Financial Ratios

2008 2009 2010 2011 20120.55

0.6

0.65

0.7

0.75

Debt Equity ratio

2007 2008 2009 2010 2011 20120.520.530.540.550.560.570.580.59

0.60.610.62

Fixed Assets Turnover ratio

2007 2008 2009 2010 2011 20120.4

0.42

0.44

0.46

0.48

0.5

0.52

Capital Turnover ratio

2008 2009 2010 2011 2012

92% 91% 91% 88% 85%79% 77% 78% 75% 73%

Plant Load FactorNTPC All India

Plant Load Factor

Share Holding Pattern in (%) MAR' 13 FEB' 13 DEC' 12 SEP' 12

Promoter 75 84.5 75 84.5

FII 9.37 4.39 8.99 3.95

DII 10.47 7.51 10.86 7.73

Others 5.16 3.6 5.15 3.82

Total 100 100 100 100

Share Holding Pattern

Concern

Biggest Concern for NTPC is collection period and debtors turnover ratio b’coz of

a) Poor Financial Condition of SEB’s.

b) Irregularities in payment by SEB’s.

2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Average Collection Period

2007 2008 2009 2010 2011 201202468

1012141618

Return on capital employed

2007 2008 2009 2010 2011 20120.115

0.12

0.125

0.13

0.135

0.14

0.145

2007 2008 2009 2010 2011 201205

1015202530354045

Gross profit ratio

2007 2008 2009 2010 2011 20120

2

4

6

8

10

12

EPS (earning per share)

2007 2008 2009 2010 2011 201202468

101214161820

PE ratio

Energy sale/Gross Gen. Ratio 93.51 Increase In Price 10.34%

NTPC Capacity

Commercialised Capacity

CAPACITY ADDITION PLF

Gross Generation (bu)

Energy Sent Out (bu) price/unit

Revenue Projection

Total Capital Expenditure Requirement

Internal Capital Expenditure

fy 10 27640    218.84 205.09 2.27 46639.74   FY 11 29830  0.91 220.34 206.04 2.63 54187.28   FY 12 30990  0.85 222.11 207.70 2.96 61478.90 13000 3900FY 13 34810 3170 0.82 222.61 208.16 3.27 67984.82 7541.2 2262.36FY 14 37118 2218 0.83 253.10 236.67 3.60 85286.69 7956 2386.8FY 15 39458 2340 0.85 276.38 258.44 3.98 102760.27 8908 2672.4FY 16 42078 2620 0.85 293.80 274.74 4.39 120530.89 2720 816FY 17 42878 800 0.85 313.31 292.98 4.84 141821.16 2977.58 893.27FY 18     0.85 319.27 298.55 5.34 159456.81   

Projected Increase in Capacity/Revenue

Rupee Loans incl. Bonds & PDS Foreign Currency Loans Total

Within 1 3,135.40 1,235.70 4,371.10

2–3 years 7,723.32 1,758.39 9,481.71

4– 5 years 7,376.79 3,717.76 11,094.55

6–10 years 13,595.28 5,662.66 19,257.94

Beyond 10 4,184.24 1,889.83 6,074.07

Total 36,015.03 14,264.34 50,279.37

Loan Repayment Schedule

FY 2013E FY 2014E FY 2015E FY 2016E FY 2017E FY 2018E

Projected Revenue 71533.51121 89053.71 106747.79 124742.46 146295.78 164154.6

Fuel 46976.13866 58481.67 70101.399 81918.51 96072.605 107800.5

Employee Expenses 3505.142049 4363.632 5230.642 6112.38 7168.4931 8043.574

Financial Expenses 1748.782588 2342.702 2808.1732 3281.551 3848.5467 4318.351

Depreciation 3740.647592 4656.818 5582.0814 6523.062 7650.1341 8584.01

Generation administration and expenses

3862.809606 4808.9 5764.3809 6736.093 7899.972 8864.347

Total Expense 59833.52049 74653.73 89486.676 104571.60 122639.75 137610.8

PBT 11699.99072 14399.99 17261.118 20170.856 23656.027 26543.79

Taxes 2822.856762 3474.284 4164.59 4866.62 5707.4897 6404.221

PAT 8877.133961 10925.7 13096.528 15304.233 17948.538 20139.57

EPS 10.76608124 13.25056 15.883312 18.560 21.76777 24.42503

FuelEmployee Expenses

Financial Expenses Dep.

Gen,exp

Total Expense WC Taxes

65.67% 4.90% 2.63% 5.23% 5.40% 83.64% 32.84% 24.13%

FY 2013E FY 2014E FY 2015E FY 2016E FY 2017E FY 2018E Post 2018

Net Income 8877.133961 10925.7 13096.528 15304.23 17948.538 20139.57 Working Capital Req. 2361.626569 5886.848 5945.2733 6046.27 7241.987 6000.617

Capex 2262.36 2386.8 2672.4 816 893.275 911.1407

Depreciation 3740.647592 4656.818 5582.0814 6523.062 7650.134 8584.01

interest(1-tax rate) 1748.782588 2342.702 2808.1732 3,281.552 3848.546 4318.351

FCFF 9742.577572 9651.573 12869.11 18246.57 21311.955 26130.18 243871.7

Debt 50376

TV 243871.7

NPV 188040.1316

Less:NET Debt 34229.89

Equity Value 153810.24

Per Share Value(Rs.) 181.2

DCF Valuation

Growth 1% 2% 3% 4% 5% 6%

Per Share Value 150.92 160.98 172.71 186.54 203.10 223.27

Retention Ratio 0.29

ROC 11.674

g=RR*ROC 3.42%

Growth (%) 3.42 %

WACC (%) 11.77 %

Cost Of Equity (%) 15.413 %

Cost of Debt (%) 5.96 %

B 0.6538

DuPont Analysis

  Net income/sales Total asset/total Equity Sales/Total assets ROE

FY 18 12.27% 1.88 0.93 21.36%

FY 17 12.27% 1.99 0.88 21.48%

FY 16 12.27% 2.02 0.78 19.24%

FY 15 12.27% 2.04 0.68 17.02%

FY 14 12.27% 1.99 0.60 14.62%

FY 13 12.41% 1.93 0.50 12.05%

FY 12 14.86% 1.92 0.46 0.131486

FY 11 16.53% 1.85 0.46 0.139783

FY 10 18.84% 1.81 0.44 0.148615

FY 9 19.56% 1.83 0.43 0.154283

FY 8 20.01% 1.70 0.45 0.152145

FY 7 21.06% 1.66 0.44 0.15333

Relative Valuation

S.No Company PE (x) EPS (Rs.) Div Yield (%) P/BV (x) EV/Sales (x) EV/

EBITDA

1 Reliance Power Ltd 18.4 3.6 0 1 7.3 21

2 Tata power 61.6 1.3 1.6 2.4 1.6 9.1

3 Adani Power Ltd 0 0 0 3.6 7.4 50.8

4 JSW Energy Ltd 7.7 6.7 1 1.3 2 7

5 Jaiprakash Power Ventures Ltd 19.8 1.1 0 1 11.1 14.4

6 Torrent Power Ltd 15.4 8.2 5.2 1 1.3 8

7 Neyveli Lignite Corporation Ltd 7.2 8.1 4.8 0.7 2.3 6.5

  AVERAGE 18.59 4.14 1.80 1.57 4.71 16.69

PRICE ON THE BASIS OF P/E RATIO Peer Group P/E Ratio - 18.59 Peer Group EBIDTA Multiple - 16.69Per Share Price(INR) - 200.10 Per Share Price(INR) - 247.93

Net Asset Valuation

Book Value 73079.24

Market capitalization(in crore) 122031.9

Shares outstanding(in crore) 824.5

Book Value per share 88.63

Market price per share 148

Premium/ (Discount) 66.99%

P/BV 1.669

2013 2014 2015 2016 2017 20180.8

1

1.2

1.4

1.6

1.8

2

P/BV

P/BV

2013 2014 2015 2016 2017 20180

2

4

6

8

10

12

14

16

Projected P/E

2013 2014 2015 2016 2017 20180

5

10

15

20

25

30

Projected EPS

2013 2014 2015 2016 2017 20180.000%

5.000%

10.000%

15.000%

20.000%

25.000%

Projected Return On Equity

2013 2014 2015 2016 2017 20180

5

10

15

20

25

30

0.000%

1.000%

2.000%

3.000%

4.000%

5.000%

6.000%

7.000%

Projected EPS

dividend

Dividend Yield

2013E 2014E 2015E 2016E 2017E 2018EP/E 13.38 10.88 9.07 7.76 6.62 5.90

Dividend Yield 0.03 0.04 0.04 0.05 0.06 0.07BV/Share 89.22 90.97 93.90 97.32 102.50 115.86

P/BV 1.66 1.63 1.58 1.52 1.44 1.28EV/EBITDA 10.85 8.41 6.85 5.76 4.84 4.28

ROE 12.36% 14.96% 17.37% 19.59% 21.81% 21.65%ROC 6.64% 8.61% 10.02% 11.27% 12.92% 11.67%

NHPC

• Mini Ratna Enterprise of Govt. of India • Incorporated in 1975 with authorised capital of Rs.200 crore, the present authorised capital

is Rs.15000 crore • Projects Completed 15 with Total Installed Capacity of 4095 MW• 16.65% of Total Hydro Power Generation Is Done by NHPC• 4095MW Of Projects Under construction 30% Capacity addition In next 5 years.• Largest Hydro Company with expertise in execution of Hydro Projects from concept to

commissioning, with 16.65% share of installed hydro-electric capacity in India and presence across 8 states with installed capacity of 5526 MW.

• Assured income business model due to long term power purchase agreement. • Problems Faced By NHPC are :

a) Land Acquisition

b) International and State Disputes.

c) National Calamities

d) Unexpected Complexitoes

• PLF-49%• PAF-83%

2007 2008 2009 2010 2011 20120

0.10.20.30.40.50.60.70.8

Debt Equity ratio

2007 2008 2009 2010 2011 20120

0.02

0.04

0.06

0.08

0.1

0.12

0.14

Capital Turnover ratio

Financial Ratios

Concern

2007 2008 2009 2010 2011 20120

5

10

15

20

25

30

Debtors Turnover ratio

2007 2008 2009 2010 2011 20120

20406080

100120140160

Average Collection Period

Biggest Concern for NTPC is collection period and debtors turnover ratio b’coz of

a) Poor Financial Condition of SEB’s.

b) Irregularities in payment by SEB’s.

2007 2008 2009 2010 2011 20120

0.10.20.30.40.50.60.70.80.9

Gross profit ratio

2007 2008 2009 2010 2011 20120

0.050.1

0.150.2

0.250.3

0.350.4

0.450.5

Net Profit ratio

2007 2008 2009 2010 2011 20120123456789

ROCE

2007 2008 2009 2010 2011 20120.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Return on Equity

2007 2008 2009 2010 2011 20120

0.5

1

1.5

2

2.5

EPS (earning per share)

2007 2008 2009 2010 2011 20120

5

10

15

20

25

PE ratio

2007 2008 2009 2010 2011 20120.00

5.00

10.00

15.00

20.00

25.00

Book Value of Share

Year Selling Price

Installed Capacity

Increase in Capacity Generation Revenue

Capital Expendit

ureInternally Raised

2017 3.626 5275.2 330 21659.976 7853.10 4335 1300.52016 3.486 4945.2 0 21659.976 7551.05 4771 1431.32015 3.352 4945.2 680 18681.576 6262.24 4094 1228.22014 3.223 4265.2 285 17433.276 5619.04 3450 10352013 3.099 3980.2 231 16421.496 5089.35 3350 10052012 2.980 3749.2 16357.09 4874.41 2011 2.810 3749.2 16293.32 4578.42 2010 2.910 3619.2 14841.67 4318.93 2009 1.850 3614.2 14587.88 2698.76 2008 1.801 3274.2 14662.69 2640.05

2007 1.746 2714.2 13048.76 2278.30

Increase in Selling Price 4%(CAGR)

Year 2013 2014 2015 2016 2017

Debt Repayment

Schedule1033.87 1218.642 1272.222 1197.222 1090.082

  FY 2013E FY 2014E FY 2015E FY 2016E FY 2017E

Projected Revenue 6135.199 6889.835 7806.369 9427.303 10132.9

Employee Expenses 750.3349 842.6268 954.719 1152.959 1239.254

Financial Expenses 688.3693 773.0395 875.8746 1057.743 1136.911

Depreciation 984.6995 1105.818 1252.922 1513.082 1626.331

Generation administration and expenses 604.992 679.4066 769.7861 929.6264 999.2054

Provisions 112.4582 126.2907 143.0907 172.8025 185.7361Expenditure on contract, project management and consultancy 122.3359 137.3833 155.659 187.9804 202.05

Total Expense 3263.19 3664.565 4152.052 5014.194 5389.487

PBT 2872.009 3225.269 3654.318 4413.109 4743.414

Taxes 561.4778 630.5402 714.4191 862.7628 927.3374

PAT 2310.532 2594.729 2939.899 3550.346 3816.076

EPS 1.878368 2.109409 2.390017 2.886286 3.102314

Other Income Gen exp

Emp. Exp

Financial Exp. Dep Provisions

Exp contract, pm ,consultancy Total Exp Taxes WC

21.5 9.861 12.23 11.22 16.05 1.833 1.944 53.188 19.55 83.70%

Income Statement

  FY 2013E FY 2014E FY 2015E FY 2016E FY 2017E Post 2017

Net Income 2310.531587 2594.729 2939.899 3550.346 3816.076  

WC Requirement 1124.31 631.63 767.14 1356.72 590.59  

Capex 1005 1035 1228.2 1431.3 1300.5  

Depreciation 984.699465 1105.818 1252.922 1513.082 1626.331  

interest(1-tax rate) 758.8647843 950.1433 1189.78 1490.04 1866.311  

FCFF 9742.577572 9651.573 12869.11 18246.58 21311.96 96573.12

Debt 19986.14          

TV           96573.12

NPV 84856.92923          

Less:NET Debt 22602.67          

Equity Value 62254.26          

Per Share Value(Rs.) 50.610          

DCF Valuation

Growth (%) WACC (%)Cost Of Equity(%) Cost of Debt (%) B

3.99% 7.28% 8.34% 5.02% 0.5762

Growth

Retention Ratio ROC g=RR*ROC

0.4955 7.60% 3.99%

Growth 1 2 3 4 5 6 7Value Per Share 41.36 50.61 64.17 85.98 126.87 231.31 463.51

DuPont Analysis

FISCAL YEARNET PROFIT

MARGINASSET

TURNOVEREQUITY

MULTIPLIERR.O.E.

FY 17 0.521 0.0912 1.885 8.959%

FY 16 0.518 0.0977 1.937 9.807%

FY 15 0.516 0.0903 1.964 9.146%

FY 14 0.513 0.0895 1.985 9.114%

FY 13 0.511 0.0886 2.002 9.055%

FY 12 0.507 0.1035 2.002 10.518%

FY 11 0.542 0.0841 1.936 8.815%

FY 10 0.507 0.1003 1.853 9.434%

FY 9 0.507 0.0763 1.966 7.614%

FY 8 0.507 0.0720 1.849 6.758%

FY 7 0.507 0.0717 1.657 6.031%

NET ASSET VALUE

Book Value 28,696.64

Market capitalization(in crore) 22141.33

Shares outstanding(in crore) 1230.07

Book Value per share 22.75

Market price per share 18

Premium/ (Discount) (26.38%)

2013 2014 2015 2016 20170

2

4

6

8

10

12

Projected EV/EBIT

2013 2014 2015 2016 20170

0.5

1

1.5

2

2.5

3

3.5

Projected EPS

2013 2014 2015 2016 20170

2

4

6

8

10

12

Projected P/E

2013 2014 2015 2016 2017 20180%

5%

10%

15%

20%

25%Projected Return On Equity

2013 2014 2015 2016 20170

0.5

1

1.5

2

2.5

3

3.5

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

eps dividend Dividend Yield

2013 2014 2015 2016 2017Dividend 0.564 0.633 0.717 0.866 0.931Dividend Yield 3.13% 3.52% 3.98% 4.81% 5.17%BV/Share 22.749 25.714 28.701 32.441 37.126P/BV 0.791 0.700 0.627 0.555 0.485ROE 8.05% 8.20% 8.33% 8.90% 8.36%ROC 7.31% 7.40% 7.48% 7.99% 7.61%

Relative Valuation

S.No Company PE (x) EPS (Rs.) Div Yield (%) P/BV (x) EV/Sales (x) EV/

EBITDA

1 Reliance Power Ltd 18.4 3.6 0 1 7.3 21

2 Tata power 61.6 1.3 1.6 2.4 1.6 9.1

3 Adani Power Ltd 0 0 0 3.6 7.4 50.8

4 JSW Energy Ltd 7.7 6.7 1 1.3 2 7

5 Jaiprakash Power Ventures Ltd 19.8 1.1 0 1 11.1 14.4

6 Torrent Power Ltd 15.4 8.2 5.2 1 1.3 8

7 Neyveli Lignite Corporation Ltd 7.2 8.1 4.8 0.7 2.3 6.5

  AVERAGE 18.59 4.14 1.80 1.57 4.71 16.69

PRICE ON THE BASIS OF P/E RATIO Peer Group P/E Ratio - 18.59 Peer Group EBIDTA Multiple - 16.69Per Share Price(INR) - 34.91 Per Share Price(INR) - 50.15

VALUATION VALUEDCF Valuation Rs.181.2NAV Valuation Rs.88.63Peer Group EV/EBIDTA Valuation Rs. 247.93Peer Group P/E Valuation Rs.200.10

VALUATION VALUEDCF Valuation Rs.50.61NAV Valuation Rs.22.75Peer Group EV/EBIDTA Valuation Rs. 50.154Peer Group P/E Valuation Rs.34.91

a) NTPC

b) NHPC

Recommendation

NTPC-BUYNHPC-BUY

Conclusion

http://trustline.co.in/ http://www.trustline.in/

Recommendations

• Company has most competitive prices but is nowhere mentioned neither on there website nor in advertiement.

• Company needs a brand identity .a recognition therefore it is advised to have a brand ambassador.

• Sending investment tips and reports through mails an\d messages and updating on website.

• This has to be followed by target achieved messages and mails .This fills confidence in the investors about the quality of ressearch.

• Camps in Colleges and companies as employees normally have ESOP.• Educating Sessions for old clients about stock market trading, stock market

instruments and also about the new Technological developments adopted in the stock market

• Instead of Charging AMC once a year , charge monthly amc charges which doesnot create heavy charges feeling.

• Website was old and crowded with information ,so a fresh look and feel is adviced.

Learnings

• Corporate culture ,environment..• Basics of Stock Market, new and different products of trading.• Different Softwares of trading.• Psychology of Indian retail investors.