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Page 1
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%
Page 2
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
% growth in Capacity 20% 19% 14% 12% 5% 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
% growth in Capacity 11% 6% 4% 9% 12% 8%
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
% growth in Capacity 13% 7% 7% 11% 4% 3%
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
% growth in Capacity 15% 12% 9% 10% 11% 3%
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
Page 3
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, %
Page 4
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%
Page 5
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
Page 6
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
Page 7
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
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Gas PLFs, % 87 84 85 89
82 79
76 74 72
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Central Sector Thermal PLF, %
79 77 77 75 73 70
66 65 62
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
All India Thermal PLF, %
Source: CEA, Spark Capital Research
Page 8
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
Page 9
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Household Consumption yoy, %
11%
5%
4%
12%
4%
0% 1%
9%
0%
5%
10%
15%
20%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
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
Domestic Commercial Agriculture Industries Others
Source: PFC
Page 10
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Proportion of DISCOM sales to consumer category
Domestic Commercial Agriculture Industries Others
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Proportion of DISCOM revenues from consumer category
Domestic Commercial Agriculture Industries Others
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
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
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%
Page 11
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)
Page 12
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
Page 13
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
Page 14
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
Page 15
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
Page 16
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
Page 17
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
Page 18
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
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%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
bn
un
its
Generation - Coal Generation - Gas yoy growth
Page 19
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
Page 20
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
Page 21
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
Page 22
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%
FY15 FY16 FY17E FY18E FY19E FY20E
bn u
nits
Generation - Group yoy
180 173 182
207
241
269
162 158 165 185
210
236
FY15 FY16 FY17E FY18E FY19E FY20E
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%
FY15 FY16 FY17E FY18E FY19E FY20E
Rs./
share
Standalone Earnings per share yoy
99 108
114 122
133
147
-5%
9%
6%
7%
9% 10%
FY15 FY16 FY17E FY18E FY19E FY20E
Rs./
share
Standalone Book Value per share yoy
FY16-20 8%
100 108
114 122
133
147
-6%
9%
5%
7%
9% 10%
FY15 FY16 FY17E FY18E FY19E FY20E
Rs./
share
Group Book Value per share yoy
Page 23
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
Page 24
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%
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E
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
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E
Rs. m
n
Debt Net Worth Debt/ Equity
Page 25
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
Page 26
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
Page 27
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
Page 28
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
Page 29
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
Page 30
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
Page 31
CMP
Rs. 153
Target
Rs. 170
Rating
ADD
NTPC
Disclaimer
Spark Disclaimer
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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
Page 32
CMP
Rs. 153
Target
Rs. 170
Rating
ADD
NTPC
Disclaimer (Cont’d)
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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
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Managing/co-managing public offering of securities
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products or services other than those above
in connection with research report
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