HSBC Research: Neutral on NTPC - Capacity addition?

NTPC - Capacity addition?
 Owns c20% of national installed capacity and generates c30% of
national power; low price and fuel risk now but fuel availability a
concern going forward
 Regulated equity base of INR245bn earning 15.5% ROE; large
un-deployed cash of INR270bn brings down ROE to c14%
 Execution on capacity addition targets remains weak; progress on
development of captive coal mines has also been disappointing
 Upgrade to Neutral from UW and raise TP to INR225 from INR185


Investment summary
Owner of biggest generation asset base in India
NTPC remains not only the biggest power
generation company within India (c20% of
national capacity and c30% of national
generation) but also one of the best in class in
terms of plant utilization measured by Plant Load
Factor (PLF). We note that NTPC currently
operates at an average PLF of c90% compared to
the national average of c70%. Moreover, it
already has a firm Fuel Supply Agreement (FSA)
with Coal India for c89% of its existing coal
requirement (i.e. an annual supply of c110mt). In
addition to this, currently all the power plants
owned by NTPC sell power based on regulated
RoE, thus providing the company with an ability
to pass any increase in fuel prices to the customers
through an automatic increase in tariff. Hence, we
believe that NTPC has both, the lowest fuel risk
and the lowest price risk, within the industry.