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NTPC's capacity addition should accelerate over the next two years, driving earnings at a 12%
CAGR over FY11-14F. However, lower generation-linked incentives on fuel shortage and ROE
gross-up at MAT vs the marginal tax rate could lower core ROE from historical average of 25-
26% by 300-400 bps each. Hold.
NTPC likely to add 9GW in the XIth Plan vs its initial target of 22GW
According to CEA data, NTPC will add commercial capacity of 9GW in the XIth Plan, ie, 41% of
its initial target. In the first four years (FY08-11) of the XIth Plan, NTPC added only 5.7GW, which
impacted growth of intrinsic value. In FY12, NTPC is likely to add 3.3GW vs its target of 4.3GW.
Execution challenges can be attributed to delays by equipment suppliers (Sipat, Barh, etc), issues
related to fuel availability, the scrapping of a hydro project (Loharinagpala), and delays across
projects. Without project delays, we estimate NATP’s core book (FY12F) would have been higher
by Rs8-10/share, implying a Rs30/share higher target price.
XIIth Plan commissioning schedule looks better than XIth Plan
Project spill over from the XIth Plan should help NTPC report additions of 6GW in FY13 and 5GW
in FY14 (best case), significantly higher than what the company achieved on average per year in
the XIth Plan. However, FY15 could see a lull with no addition. A large part of the additions in
FY16/FY17 could depend on the pace of execution of the recently awarded bulk orders for
660/800 MW. We expect NTPC to add about 25.7GW in the XIIth Plan, with a medium probability
of 4-5GW slippages in projects to be commissioned in FY16/FY17.
Company is working to address the fuel challenges
To counter the risk of coal shortage, NTPC has recently signed bilateral agreements with SCCL
and ECL to supply 5MT and 2.5MT of coal, respectively, at a price that is higher than the notified
price of coal; a positive, in our view. Also, NTPC has already received coal linkage for 660MW
bulk tender projects and will likely get linkage for 800MW bulk projects (as a special case),
though actual receipt will be a challenge. NTPC is likely to import 30-50mt of coal by FY17F to
overcome the shortage in domestic supply (see scenarios in Tables 4 and 5). Ramp-up of captive
coal mines as per schedule coupled with more bilateral agreements with coal companies could
partially reduce coal shortage risk, which is a key sector/company risk. We resume coverage with
a Hold rating and Rs180 target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC's capacity addition should accelerate over the next two years, driving earnings at a 12%
CAGR over FY11-14F. However, lower generation-linked incentives on fuel shortage and ROE
gross-up at MAT vs the marginal tax rate could lower core ROE from historical average of 25-
26% by 300-400 bps each. Hold.
NTPC likely to add 9GW in the XIth Plan vs its initial target of 22GW
According to CEA data, NTPC will add commercial capacity of 9GW in the XIth Plan, ie, 41% of
its initial target. In the first four years (FY08-11) of the XIth Plan, NTPC added only 5.7GW, which
impacted growth of intrinsic value. In FY12, NTPC is likely to add 3.3GW vs its target of 4.3GW.
Execution challenges can be attributed to delays by equipment suppliers (Sipat, Barh, etc), issues
related to fuel availability, the scrapping of a hydro project (Loharinagpala), and delays across
projects. Without project delays, we estimate NATP’s core book (FY12F) would have been higher
by Rs8-10/share, implying a Rs30/share higher target price.
XIIth Plan commissioning schedule looks better than XIth Plan
Project spill over from the XIth Plan should help NTPC report additions of 6GW in FY13 and 5GW
in FY14 (best case), significantly higher than what the company achieved on average per year in
the XIth Plan. However, FY15 could see a lull with no addition. A large part of the additions in
FY16/FY17 could depend on the pace of execution of the recently awarded bulk orders for
660/800 MW. We expect NTPC to add about 25.7GW in the XIIth Plan, with a medium probability
of 4-5GW slippages in projects to be commissioned in FY16/FY17.
Company is working to address the fuel challenges
To counter the risk of coal shortage, NTPC has recently signed bilateral agreements with SCCL
and ECL to supply 5MT and 2.5MT of coal, respectively, at a price that is higher than the notified
price of coal; a positive, in our view. Also, NTPC has already received coal linkage for 660MW
bulk tender projects and will likely get linkage for 800MW bulk projects (as a special case),
though actual receipt will be a challenge. NTPC is likely to import 30-50mt of coal by FY17F to
overcome the shortage in domestic supply (see scenarios in Tables 4 and 5). Ramp-up of captive
coal mines as per schedule coupled with more bilateral agreements with coal companies could
partially reduce coal shortage risk, which is a key sector/company risk. We resume coverage with
a Hold rating and Rs180 target price.
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