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National Thermal Power Corporation Ltd (NTPC)
BUY Target Price: Rs.252.00
CMP: Rs.210.00 Market Cap.: Rs.1731546.60mn.
Date: February 03, 2010
Key Ratios:
Particulars FY09 FY10E FY11E
OPM (%) 31.15 34.27 34.19
PAT Margin (%) 18.59 19.24 19.14
ROE (%) 14.30 13.78 13.10
ROCE (%) 12.38 13.22 12.88
P/BV(x) 3.02 2.60 2.26
P/E(x) 21.11 18.88 17.25
EV/EBDITA(x) 12.60 10.60 9.66
Debt Equity Ratio 0.60 0.56 0.53
Key Data:
Sector Power
Face Value Rs.10.00
52 wk. High/Low (Rs.) 242.00/167.30
Volume (2 wk. Avg.) 1017000
BSE Code 532555
SYNOPSIS
• NTPC Ltd is the largest thermal power generating
company of India.
• NTPC will be commissioning projects totaling 4,150
MW during 2010-11.
• NTPC Vidyut Vapyar Nigam (NVVNL), a wholly-
owned trading arm of NTPC and the national nodal
agency, has decided to procure solar power up to
1,000 MW by 2013.
• The coal based unit 5 (490 MW) of NTPC’s national
capital thermal power project, Dadri located in Uttar
Pradesh has been successfully commissioned.
• NTPC has formed a Joint Venture (JV) company in
the name of ‘Energy Efficiency Services’ with three
other PSUs.
• Follow-on-public (FPO) issue of NTPC has been
subscribed 0.60 times.
• Net sales and PAT of the company are expected to
grow at a CAGR of 12% and 11% over 2008 to 2011E
respectively.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
[email protected]
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
[email protected]
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Table of Content
Investment Highlights……………………………………………………………………………………………………………3
Company Profile…………………………………………………………………………………………………………………….5
Peer Group comparison………………………………………………………………………………………………….….….6
Key concerns………………………………………………………………………………………………………………….……….7
Financials……………………………………………………………………………………………………………………………….7
Charts………………………………………………………………………………………………………………………….………...9
Outlook and conclusions……………………………………………………………………………………………………...11
Industry Overview…….…………………….……………………………………………………………….………….…….. .12
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Investment Highlights
Q3 FY10 Results Update
NTPC disclosed a rise in standalone net profit for the quarter ended December 2009.
During the quarter, the profit of the company rose 5.07% to Rs 23,649.80 million from Rs
22,509.10 million in the same quarter last year. Net sales for the quarter for the quarter
decreased 1.30% to Rs 117,092.00 million, while total income for the quarter decreased
1.36% to Rs 119,628.60 million, when compared with the prior year period. It reported
earnings of Rs 2.87 a share during the quarter, registering 5.07% growth over prior year
period.
Quarterly Results - Standalone (Rs in mn)
As at Dec - 09 Dec - 08 %Change
Net Sales 117,092.00 118,630.80 (1.30)
Net Profit 23,649.80 22,509.10 5.07
Basic EPS 2.87 2.73 5.07
QIBs subscribe fully to NTPC FPO
Follow-on-public (FPO) issue of state-run National Thermal Power Corporation (NTPC) has
been subscribed 0.60 times. The portion allotted to qualified institutional buyers (QIBs)
has been fully subscribed. The company launched its FPO consisting of 4,122 equity
shares. The floor price of the issue has been fixed at Rs 201 a share. The FPO will close on
Feb. 05, 2010.
NTPC to add 4150 MW in 2010-11
NTPC will be commissioning projects totaling 4,150 MW during 2010-11. Likely schedules
of project commissioning is Dadri Unit 6 (490 MW - July 2010), Jhajjar Unit 1 (500 MW
September 2010), Korba Unit 7 (500 MW October 2010), Sipat Unit 1 (660 MW December
2010), Simhadri Unit 3 (500 MW January 2011), Farakka Unit 6 (500 MW February 2011),
Simhadri Unit 4 (500 MW March 2011) and Jhajjar Unit 2 (500 MW March 2011). NTPC is
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making best efforts to complete the remaining projects during the 11th Plan. Coal linkages
for all the 11th Plan projects are already available.
NTPC NVVNL to procure 1,000 MW solar power by 2013
NTPC Vidyut Vapyar Nigam (NVVNL), a wholly-owned trading arm of NTPC and the
national nodal agency, has decided to procure solar power up to 1,000 MW by 2013. The
company will mix solar power tariff with the unallocated thermal power before pushing it
into the grid fora final price of Rs 5-5.50 a unit. After making cost calculation, it was found
that the solar photovoltaic power would have to be bought at Rs 18.30 per unit and solar
thermal at Rs 13.50 per unit.
NTPC commissions 490 MW Dadri thermal power project
NTPC, the largest thermal-power generating company, announced that coal based unit 5
(490 MW) of its national capital thermal power project, Dadri located in Uttar Pradesh has
been successfully commissioned. It has reached full load of 490 MW on Jan. 29, 2010.
With the commissioning of this unit, the total installed capacity of the company has
crossed 31000 MW and has become 31134 MW. This is the first unit planned to provide
power to common wealth games to be organized in Delhi in October 2010.
NTPC board approves road map to foray into solar power biz
The board of directors of the company has approved a road map to foray into solar power
generation business for capacity addition of 301 MW through solar energy by March
2014. Out of 301 MW, 190 MW will be added through solar thermal technology and the
balance 111 MW will be added through solar PV technology. As a first step, grid
interactive 15 MW solar thermal based project is being taken up by NTPC at Anta in
Rajasthan which is first of its kind in India.
NTPC-Bhutan pact for Amochhu hydel plant
NTPC has entered into a preliminary agreement with Bhutan to set up the Amochhu
Reservoir hydel project. The agreement for preparing a detailed project report was signed
in the presence of Prime Minister Manmohan Singh and Bhutanese King Jigme Khesar
Namgyel Wangchuck.
NTPC forms JV with three other PSUs
State-owned power generation giant, National Thermal Power Corporation (NTPC) has
formed a Joint Venture (JV) company in the name of ‘Energy Efficiency Services’. The JV
has been formed amongst NTPC, Power Finance Corporation (PFC), Power Grid
Corporation of India (PGCIL) and Rural Electrification Corporation (REC) to carry on and
promote the business of energy efficiency and climate change including manufacture and
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supply of energy efficiency services and products. All four public sector undertakings
(PSUs) will hold equal stake in the JV.
NTPC to set up 2640 mw coal based thermal power project in MP
India’s largest power company National Thermal Power Corporation (NTPC) has decided
to set-up 4x660 megawatt (MW) coal based thermal power project in Narsingpur district
of Madhya Pradesh (MP). The company has entered into a Memorandum of
Understanding (MoU) with the state government of MP and Madhya Pradesh Power
Trading Company for the same. The project will be set-up as a regional project of NTPC,
subject to establishment of its techno-commercial viability.
Company Profile
NTPC, India's largest power company, was incorporated on November 7, 1975 to accelerate
power development in India. Today, it has emerged as an ‘Integrated Power Major’, with a
significant presence in the entire value chain of power generation business.
With a current generating capacity of 30,144 MW, NTPC has embarked on plans to become a
75,000 MW company by 2017. NTPC is emerging as a diversified power major with presence in
the entire value chain of the power generation business. Apart from power generation, which is
the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash
utilization and coal mining.
Business area of the company:
• Power Generation
• Consultancy services
• Power trading
• Ash utilization
• Coal mining
Business divisions
Hydro Power: In order to give impetus to hydro power growth in the country and to have a
balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW
Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in
Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of
capacities up to 250 MW.
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Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured
into coal mining business with an aim to meet about 20% of its coal requirement from its
captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC,
including 2 blocks to be developed through joint venture route. Coal Production is likely to start
in 2009-10.
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.
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. Joint ventures with cement companies are being
planned to set up cement grinding units in the vicinity of NTPC stations.
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 Accelerated Power Development and
Reforms Programme(APDRP) launched by Government of India.
Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of
power equipment manufacturing capacity. NTPC has formed JVs 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.
Peer Group Comparison
Name of the company
CMP (Rs.)
(As on Feb.
03, 2010
Market
Cap.(Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)
NTPC Ltd 210.00 1,731,546.60 10.70 19.63 2.94
36.00
Power Grid Ltd 112.90 475,178.20 5.01 22.53 3.51
12.00
Reliance Power Ltd 148.00 354,726.40 1.14 129.82 2.57
0.00
Tata Power co Ltd 1297.60 307,776.00 47.85 27.12 3.55
115.00
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Key Concerns
Adverse Govt. policies.
High competition from unorganized players to some extent.
Slow execution of projects.
Financials
Results Update
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY08 FY09 FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 370501.00 441260.80 476673.48 524340.83
Other Income 29676.00 11466.80 10421.73 11463.90
Total Income 400177.00 452727.60 487095.21 535804.73
Expenditure -258262.00 -315259.10 -323735.21 -356551.76
Operating Profit 141915.00 137468.50 163360.00 179252.97
Interest -17981.00 -20229.00 -16860.09 -18546.10
Gross profit 123934.00 117239.50 146499.91 160706.87
Deprecation -21385.00 -23644.80 -26057.14 -28662.86
Profit Before Tax 102549.00 93594.70 120442.77 132044.01
Tax -28401.00 -11581.70 -28726.52 -31690.56
Profit After Tax 74148.00 82013.00 91716.25 100353.45
Equity capital 82455.00 82454.60 82454.60 82454.60
Reserves 443931.00 491246.00 582962.25 683315.70
Face value(Rs.) 10.00 10.00 10.00 10.00
EPS (Rs.) 8.99 9.95 11.12 12.17
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E
Description 3m 3m 3m 3m
Net sales 125279.70 112526.10 117092.00 121775.68
Other income 2509.90 2711.80 2536.60 2663.43
Total Income 127789.60 115237.90 119628.60 124439.11
Expenditure -88270.10 -75690.60 -78184.80 -81589.71
Operating profit 39519.50 39547.30 41443.80 42849.40
Interest -4446.70 -5406.90 -3417.80 -3588.69
Gross profit 35072.80 34140.40 38026.00 39260.71
Deprecation -6127.90 -6437.50 -6613.60 -6878.14
Profit Before Tax 28944.90 27702.90 31412.40 32382.57
Tax -7008.70 -6183.40 -7762.60 -7771.82
Profit After Tax 21936.20 21519.50 23649.80 24610.75
Equity capital 82454.60 82454.60 82454.60 82454.60
Face value(Rs.) 10.00 10.00 10.00 10.00
EPS 2.66 2.61 2.87 2.98
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1 Year Comparative Graph
Outlook and Conclusion
At the current market price of Rs.210.00, the stock is trading at 18.88x FY10E and 17.25x
FY11E respectively.
Price to Book Value of the stock is expected to be at 2.60x and 2.26x respectively for
FY10E and FY11E.
Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at
Rs.11.12 and Rs.12.17 respectively.
Net Sales and PAT of the company is expected to grow at a CAGR of 12% and 11% over
2008 to 2011E respectively.
On the basis of EV/EBITDA, the stock trades at 10.60x for FY10E and 9.66x for FY11E.
NTPC will be commissioning projects totaling 4,150 MW during 2010-11.
NTPC announced that coal based unit 5 (490 MW) of its national capital thermal power
project, Dadri located in Uttar Pradesh has been successfully commissioned.
NTPC BSE SENSEX
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India’s largest power company National Thermal Power Corporation (NTPC) has decided
to set-up 4x660 megawatt (MW) coal based thermal power project in Narsingpur district
of Madhya Pradesh (MP).
NTPC has entered into a preliminary agreement with Bhutan to set up the Amochhu
Reservoir hydel project.
NTPC has formed a Joint Venture (JV) company in the name of ‘Energy Efficiency
Services’ with three other PSUs to carry on and promote the business of energy
efficiency and climate change including manufacture and supply of energy efficiency
services and products.
NTPC Vidyut Vapyar Nigam (NVVNL), a wholly-owned trading arm of NTPC and the
national nodal agency, has decided to procure solar power up to 1,000 MW by 2013.
We expect that the company will keep its growth story in the coming quarters also. We
recommend ‘BUY’ in this particular scrip with a target price of Rs.252.00 for Medium to
Long term investment.
Industry Overview
Sector structure
As the Indian economy continues to surge ahead, its power sector has been expanding
concurrently to support the growth rate. The demand for power is growing exponentially and
the scope for the growth of this sector is immense. India's total installed capacity of electricity
generation has expanded from 105,045.96 MW at the end of 2001–02 to 155,859.23 MW at the
end of November 2009. In fact, India ranks sixth globally in terms of total electricity generation.
Source-wise, at the end of November 2009, thermal power plants accounted for an
overwhelming 63.92 per cent of the total installed capacity, producing 99628.48 MW. Hydel
power plants come next with an installed capacity of 36,885.40 MW, accounting for 23.67 per
cent of the total installed electricity generation capacity. Besides thermal and hydel power,
renewable energy sources contribute 9.77 per cent to the total power generation in the country
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producing 15,225.35 MW. Nuclear energy makes up the balance 2.64 per cent, contributing
41,200 MW.
According to the latest data obtained from the Central Electricity Authority (CEA), while power
demand increased marginally from 108,911 Mw in the first seven months of the financial year
2007-08 to 109,304 Mw in the same period of 2008-09, it jumped to 116,281 Mw in the first
seven months of 2009-10, as industrial activity improved due to the recovery. Factories
accounted for around 30-40 per cent of the total power consumed in the country.
Powering Up
Power demand versus deficit in Apr-Oct of last five years
Year Demand % increase
in demand Availability Deficit (%)
2005-06 88,667 NA 80,631 9.10
2006-07 98,520 11.11 84,468 12.20
2007-08 108,911 10.54 92,976 14.60
2008-09 109,304 0.36 94,566 13.50
2009-10 116,281 6.38 101,609 12.60
Source: CEA
(Figures in Mw)
Growth Potential
According to a report by KPMG and CII, released in December 2007, India's energy sector will
require an investment of around US$ 120 billion- US$ 150 billion over the next five years. The
government has revised its target of power capacity addition to 92,700 MW in the 11th Five
Year Plan (2007-12), from the earlier estimate of 78,577 MW (as of June 2007) to sustain the
growth momentum of the economy.
Further, according to Planning Commission estimates, renewable energy (RE) projects worth
US$ 16.50 billion, for the generation of 15,000 MW power, would come up in the 11th Plan.
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Moreover, the government has earmarked a total capital subsidy of US$ 6.88 billion for
providing electricity connections and for the distribution of infrastructure to rural households.
Nuclear Power Generation
Subsequent to the Indo-US nuclear deal and India getting clearance from the Nuclear Suppliers
Group (NSG), nuclear power generation is likely to provide an opportunity of US$ 10 billion in
the next five years, according to a JP Morgan estimate.
Since the Indo-US nuclear deal, India has signed a crucial civil nuclear agreement with Mongolia
for supply of uranium to New Delhi. In November 2009, the Indo-French civil nuclear agreement
was unanimously adopted by the French Parliament, paving way for companies to build nuclear
power plants in India. India has also signed a civil nuclear pact with Argentina and has reached
an agreement on civil nuclear cooperation with Canada. In December 2009, Russia and India
signed an agreement to expand nuclear cooperation.
• Hindustan Construction Company (HCC) has signed a memorandum of understanding (MoU)
with the international engineering and project management company AMEC plc, to jointly
explore the application of consulting and EPC services for the establishment of nuclear
power plants in India.
• The Central government has finalised six 1,000 MW nuclear power units at Mithivirdi in
Gujarat, involving an investment of US$ 12.8 billion.
• Indian Oil Corporation (IOC) has signed a memorandum of understanding (MoU) with the
Nuclear Power Corp of India (NPCIL) for setting up of a US$ 2.2 billion nuclear power plant.
• Larsen & Toubro (L&T) is entering a joint venture with the Nuclear Power Corporation of
India (NPCIL) to explore co-operation in the setting up of nuclear power plants.
Investments
According to research by Venture Intelligence, India’s power sector is set to emerge as a key
destination for private equity (PE) players to make investments, with close to US$ 1.64 billion
worth of infrastructure funds, mainly in power, awaiting their launch.
• National Hydroelectric Power Corporation (NHPC), the country’s largest hydel power
producer, will develop the 1,500-MW Tipaimukh hydropower project in the north-eastern
state of Manipur at an investment of US$ 1.7 billion.
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• Bhushan Power and Steel (BPSL) plans to invest US$ 629.1 million to add 250 MW capacity
to its existing power plant and to increase production of value-added steel at its Orissa
facility over the next one year.
• More than US$ 15.4 billion worth of investments have been lined up for various power
projects in Maharashtra; it was announced by Mr Subrat Ratho, Maharashtra Power
Secretary.
• A loan agreement of US$ 330 million for the Haryana Power System Improvement Project
has been signed by representatives from the Government of India, the Government of
Haryana and the World Bank.
• The Orissa government has approved two bio-mass based power projects with a combined
generating capacity of 39 MW of power, in an effort to exploit the available potential in the
bio-mass sector.
• Torrent Power Limited, has dedicated the country's biggest gas-based power project of
1,147 MW capacity near Surat and is further scaling up generation capacity of its plant by
adding another 3,400 MW in the next five years.
• The joint venture between Toshiba of Japan and the JSW Group, which is setting up a US$
215 million power plant equipment manufacturing unit in Chennai, plans to start work on
the project by December 2009.
• Larsen & Toubro has reached a milestone in the Indian power sector by establishing the
country’s largest transmission line research and testing centre at Kanchipuram, near
Chennai.
Government Initiatives
The government has taken several proactive steps to open the sector for the private players
and realize the full potential of the country in the power sector.
• Introduction of the Electricity Act 2003 and the notification of the National Electricity and
Tariff policies.
• Constitution of Independent State Electricity Regulatory Commissions in the states.
• Allowing the private sector to set up coal, gas or liquid-based thermal projects, hydel
projects and wind or solar projects of any size.
• Allowing foreign equity participation up to 100 per cent in the power sector under the
automatic route.
• Allowing 100 per cent foreign direct investment (FDI) in the Indian power sector (except
nuclear).
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• Allowing 100 per cent foreign direct investment (FDI) in the renewable energy sector.
• Providing income tax holiday for a block of 10 years in the first 15 years of operation and
waiver of capital goods' import duties on mega power projects (above 1,000 MW
generation capacity).
• The government has also taken up some ambitious programmes like the Ultra Mega Power
Projects (UMPP), Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY), Accelerated Rural
Electrification Programme and the goal of Power for All by 2012 among others, to rapidly
increase the installed capacity.
Looking ahead
A study by consultancy major McKinsey estimates, India's power demand to increase to 315
GW–335 GW by 2017, if India continues to grow at an average of 8 per cent in that time. This
would require a five- to ten-fold rise in power production, entailing investments worth US$ 600
billion. To fuel its rapidly growing economy, India is planning to get an additional 60,000 MW of
electricity from various hydro-power projects by the end of 2025.
The government targets providing electricity for all by 2012. Under the Rajiv Gandhi Grameen
Vidyutikaran Yojna, the Ministry of Power plans to electrify 120,000 villages in the current Five
Year Plan (2007–12).
________________ ____ _________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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