ICICI Securities: NTPC BUY Maintained PLF improvement assuages Q1 concerns

As per Central Electricity Authority’s (CEA) recent generation data, overall July-
August plant load factor (PLF) for NTPC’s coal-based plants has improved YoY to
85.1% in ’10 from 82.5% in ’09. This is in line with NTPC’s stance explaining lower
PLF in Q1FY11 – the management had suggested that Q1FY11 PLF was below par
due to the advancement of scheduled maintenance. Besides, PLF from Dadri &
Badarpur has sharply fell due to under-drawl and higher hydro supply in Delhi.
The Dadri and Badarpur projects are expensive (high variable costs) owing to the
use of imported fuel. Despite the negative impact from under drawl at these
plants YoY, coal based plant generation has improved 7.34% YoY during July-
August ’10 (including increased capacity). Further, in case of under-drawl, NTPC
is qualified for fixed cost and incentives as they are linked to the PAF. Lower
generation, owing to the lack of demand schedule, can only impact to the extent
of reduced energy efficiency-related benefit. We reiterate BUY on NTPC at a target
price of Rs243/share owing to increased capacity addition and reasonable
valuations at FY12E P/BV of 2.3x.
􀁦 Improving PLF assuages performance-related concern in Q1… As per the
management, advancement of scheduled maintenance in few plants led to belowpar
performance in Q1FY11 – a YoY improvement in some plants’ PLF corroborates
this stance. PLF from Farakka, Korba and Talcher plants has improved significantly,
reversing the Q1FY11 trend, when overall coal based plant PLF dropped 2.8% YoY
versus 2.3% YoY improvement in July-August ’10.
􀁦 …despite lower demand from Dadri & Badarpur plants. Owing to lower drawl by
Delhi on account of excessive rains and higher hydro generation, the Dadri and
Badarpur plants are suffering (the projects are based on expensive variable cost).
The PLF for these plants was lower ~20% YoY in August ’10. However, lower drawl
has a limited impact on profitability under the new tariff regime, wherein fixed cost
absorption is linked to availability rather than load. Lower generation owing to under
drawl impacts only to the extent of energy efficiency linked incentives.
􀁦 Reiterate BUY considering the increased pace of execution and reasonable
valuations. Our target price stands at Rs243/share, suggesting a 17% upside from
the current levels.