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NTPC Ltd.
Loss of 3.1bt coal mines
confirmed as Govt. gets tough
„Execution delays cost loss of captive coal mines of 3.1bt; U/P
The govt. formally took back five captive coal mines from NTPC/JVs with
geological reserves of 3.1bt due to a 2-3 year of delay in their development (see
Exhibit 2-5). This is a big loss of strategic option value for NTPC, as the mines
could have powered ~6-7GW (20% of capacity) without depending on the
inefficiencies of Coal India / Railways, in our view. Consequently, NTPC will now
have to queue with other IPPs for coal linkages. We had already factored in the
loss of the coal mines (read NTPC). We reiterate our non-consensus U/P rating,
despite 11% underperformance in the last year, based on slowing growth and one
of the most expensive regulated utility valuations of 2x P/BV.
Lost 54% (42% eq.) of coal reserves, as MoC punish resource grab
MoC has formally taken back 5 of the 8 captive coal blocks allocated to NTPC and its
JV in 2006-07, highlighting the 2-3 year delay (see Exhibit 2-5) in development of the
mines, despite pressure from the Ministry of Power to reconsider the same. NTPC lost
three coal blocks (826mt reserves) - Chatti Bariatu, Chatti Bariatu (South) and
Kerandari -- of the 6 blocks allocated (3.5bt reserves), while its 50:50 JV with CIL lost
both Brahmani and Chichiro Patsimal coal blocks, with 2.3bt of reserves (see Exhibit
1). These blocks may now be allotted to CIL (Neutral, Rs396).
Secular growth slowed by delay in capex, Underperform
Core arguments: Negative catalysts are: 1) the delay in capex impacting PAT/RoE
growth, 2) risk of tax gross-up @ MAT in FY12E impacting EPS growth, 3)
increased competition as India moves to a competitive bidding regime and 4) rich
valuation - P/BV at 2x FY12E, highest among the regulated Asian utilities. Positive
catalyst would be a pick-up in power / coal capex and higher than 15.5% RoE on
gross-up of tax @ peak rate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC Ltd.
Loss of 3.1bt coal mines
confirmed as Govt. gets tough
„Execution delays cost loss of captive coal mines of 3.1bt; U/P
The govt. formally took back five captive coal mines from NTPC/JVs with
geological reserves of 3.1bt due to a 2-3 year of delay in their development (see
Exhibit 2-5). This is a big loss of strategic option value for NTPC, as the mines
could have powered ~6-7GW (20% of capacity) without depending on the
inefficiencies of Coal India / Railways, in our view. Consequently, NTPC will now
have to queue with other IPPs for coal linkages. We had already factored in the
loss of the coal mines (read NTPC). We reiterate our non-consensus U/P rating,
despite 11% underperformance in the last year, based on slowing growth and one
of the most expensive regulated utility valuations of 2x P/BV.
Lost 54% (42% eq.) of coal reserves, as MoC punish resource grab
MoC has formally taken back 5 of the 8 captive coal blocks allocated to NTPC and its
JV in 2006-07, highlighting the 2-3 year delay (see Exhibit 2-5) in development of the
mines, despite pressure from the Ministry of Power to reconsider the same. NTPC lost
three coal blocks (826mt reserves) - Chatti Bariatu, Chatti Bariatu (South) and
Kerandari -- of the 6 blocks allocated (3.5bt reserves), while its 50:50 JV with CIL lost
both Brahmani and Chichiro Patsimal coal blocks, with 2.3bt of reserves (see Exhibit
1). These blocks may now be allotted to CIL (Neutral, Rs396).
Secular growth slowed by delay in capex, Underperform
Core arguments: Negative catalysts are: 1) the delay in capex impacting PAT/RoE
growth, 2) risk of tax gross-up @ MAT in FY12E impacting EPS growth, 3)
increased competition as India moves to a competitive bidding regime and 4) rich
valuation - P/BV at 2x FY12E, highest among the regulated Asian utilities. Positive
catalyst would be a pick-up in power / coal capex and higher than 15.5% RoE on
gross-up of tax @ peak rate.
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