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India Equity Research Reports, IPO and Stock News
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India Utilities Sector----------------------------------------------------- Maintain MARKET WEIGHT
Captive coal block de-allocation negative for NTPC
● The Ministry of Coal has decided to de-allocate 14 captive coal
blocks and one captive lignite block on account of the slow
progress in the implementation of these mines by its developers.
● Among listed companies, five NTPC coal blocks and one lignite
block of KSK has been de-allocated. Of this, KSK’s lignite block
was small and, as per the company, it was uneconomical to
develop it (was not part of our estimates either). However, this
would be negative for NTPC as it stands to lose five of the eight
captive mines allocated (two de-allocated mines were in a JV
where NTPC held a 50% stake).
● Cumulatively, these mines were expected to have an attributable
mineable reserve of 708 mt and geological attributable reserves of
about 2 bt. Besides, another NTPC captive mine, Dulanga, has
been classified under the ‘no-go zone’ by the Environment
Ministry. While NTPC plans to contest this move and expects the
decision to be reversed, we see a risk of delays in its plans to
produce 47 mmtpa of coal from captive mines by FY17, which
was expected to meet 25% of its coal needs by then.
● This would be negative for NTPC as it increases its fuel volume
risk, given likely scenario of rising domestic fuel deficits. We
downgraded NTPC in March 2011 on rising fuel concerns and
continue to maintain our cautious view on the stock.
Coal ministry de-allocates 15 coal blocks
In order to expedite coal production to meet growing domestic coal
needs, the government has been allocating captive coal mines since
1993 to project developers (towards captive use for end-use projects,
not for commercial sale of coal), under the Government or Captive
dispensation route. However, of the over 200 captive coal blocks
allocated, commercial production has started in only about 25 coal
blocks till date. Post the review of progress of various captive blocks,
the Ministry of Coal had issued show cause notices to developers of
88 blocks, seeking replies of why their allocations should not be
cancelled in view of the unsatisfactory progress.
The Ministry of Coal has decided to de-allocate 14 captive coal blocks
and one captive lignite block, where response to the show-cause
notices by developers explaining delays was deemed unsatisfactory.
Besides, it has also recommended issue of warning to another 29 coal
and three lignite block allocatees to commence production at the
earliest. However, it has recommended no action against the 20 coal
blocks that fall in the ‘no-go zone’ or the wild life corridor.
NTPC worst hit from coal block de-allocations
Five captive coal blocks of NTPC have been de-allocated, of which
three are 100%-owned by NTPC – Kerandari, Chatti Bariatu, Chatti
Bariatu South and the other two are owned in a 50% JV by NTPC –
Brahmini and Chichro Patsimal. Cumulatively, these mines are
expected to contain attributable mineable reserve of 708 mt and
geological attributable reserves of about 2 bt (refer to Fig 1). Besides,
another NTPC captive mine, Dulanga, has been classified under the
‘no-go zone’ by the Environment Ministry.
NTPC expects this decision to be reversed. We expect
delays in captive production plans – Maintain NEUTRAL
As per NTPC, it has still not received any official notification towards
such a de-allocation and believes that based on the progress of these
mines, it would be able to convince the Ministry of Coal for a reversal
of its decision. However, we see a risk of delays in its plans to
produce 47 mmtpa of coal from its captive mines by FY17, which was
expected to meet 25% of its coal needs by then. This would be
negative for NTPC as it increases the company’s fuel volume risk. Our
sensitivity analysis suggests NTPC’s project earnings would be
impacted by 24% for a 10% coal deficit, if it is unable to source
adequate coal, leading to a fall in its plant availability factor (PAF). We
downgraded NTPC in March 2011 to a NEUTRAL rating on rising fuel
concerns and continue to maintain our cautious view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Utilities Sector----------------------------------------------------- Maintain MARKET WEIGHT
Captive coal block de-allocation negative for NTPC
● The Ministry of Coal has decided to de-allocate 14 captive coal
blocks and one captive lignite block on account of the slow
progress in the implementation of these mines by its developers.
● Among listed companies, five NTPC coal blocks and one lignite
block of KSK has been de-allocated. Of this, KSK’s lignite block
was small and, as per the company, it was uneconomical to
develop it (was not part of our estimates either). However, this
would be negative for NTPC as it stands to lose five of the eight
captive mines allocated (two de-allocated mines were in a JV
where NTPC held a 50% stake).
● Cumulatively, these mines were expected to have an attributable
mineable reserve of 708 mt and geological attributable reserves of
about 2 bt. Besides, another NTPC captive mine, Dulanga, has
been classified under the ‘no-go zone’ by the Environment
Ministry. While NTPC plans to contest this move and expects the
decision to be reversed, we see a risk of delays in its plans to
produce 47 mmtpa of coal from captive mines by FY17, which
was expected to meet 25% of its coal needs by then.
● This would be negative for NTPC as it increases its fuel volume
risk, given likely scenario of rising domestic fuel deficits. We
downgraded NTPC in March 2011 on rising fuel concerns and
continue to maintain our cautious view on the stock.
Coal ministry de-allocates 15 coal blocks
In order to expedite coal production to meet growing domestic coal
needs, the government has been allocating captive coal mines since
1993 to project developers (towards captive use for end-use projects,
not for commercial sale of coal), under the Government or Captive
dispensation route. However, of the over 200 captive coal blocks
allocated, commercial production has started in only about 25 coal
blocks till date. Post the review of progress of various captive blocks,
the Ministry of Coal had issued show cause notices to developers of
88 blocks, seeking replies of why their allocations should not be
cancelled in view of the unsatisfactory progress.
The Ministry of Coal has decided to de-allocate 14 captive coal blocks
and one captive lignite block, where response to the show-cause
notices by developers explaining delays was deemed unsatisfactory.
Besides, it has also recommended issue of warning to another 29 coal
and three lignite block allocatees to commence production at the
earliest. However, it has recommended no action against the 20 coal
blocks that fall in the ‘no-go zone’ or the wild life corridor.
NTPC worst hit from coal block de-allocations
Five captive coal blocks of NTPC have been de-allocated, of which
three are 100%-owned by NTPC – Kerandari, Chatti Bariatu, Chatti
Bariatu South and the other two are owned in a 50% JV by NTPC –
Brahmini and Chichro Patsimal. Cumulatively, these mines are
expected to contain attributable mineable reserve of 708 mt and
geological attributable reserves of about 2 bt (refer to Fig 1). Besides,
another NTPC captive mine, Dulanga, has been classified under the
‘no-go zone’ by the Environment Ministry.
NTPC expects this decision to be reversed. We expect
delays in captive production plans – Maintain NEUTRAL
As per NTPC, it has still not received any official notification towards
such a de-allocation and believes that based on the progress of these
mines, it would be able to convince the Ministry of Coal for a reversal
of its decision. However, we see a risk of delays in its plans to
produce 47 mmtpa of coal from its captive mines by FY17, which was
expected to meet 25% of its coal needs by then. This would be
negative for NTPC as it increases the company’s fuel volume risk. Our
sensitivity analysis suggests NTPC’s project earnings would be
impacted by 24% for a 10% coal deficit, if it is unable to source
adequate coal, leading to a fall in its plant availability factor (PAF). We
downgraded NTPC in March 2011 to a NEUTRAL rating on rising fuel
concerns and continue to maintain our cautious view.
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