Key takeaways from our meeting with Director (Finance) of NTPC:
NTPC remains opposed to participating in a coal price pooling
arrangement. According to management, pooling could place NTPC’s
plants lower in the merit order of dispatch for SEBs, as private sector
capacity setup using Chinese equipment may have lower fixed costs.
Meeting rising coal import targets to plug shortfalls may be difficult;
pooling is the answer, in our view. Management pegged the FY14 target
of coal imports at 17MMT, lower than the 24MMT targeted earlier. In our
assessment, imported coal transportation to NTPC plants in the interior
states of the country is inefficient, and the company could benefit from
pooling to plug potential slippages in direct imports and target captive coal
production (see 11 January NTPC report - The greater good).
NTPC will continue to follow up on coal quality issues with CIL.
Management said the problem has worsened as coal pricing has been done
on the basis of GCV since Jan-2012 vs. UHV earlier. The lowest count of
the former scale is smaller, so slippages in quality are costly for the buyer.
Key FY13 stats are favorable. Availability factor for coal-based plants of
NTPC in FY13 was 87.6% vs. 88.4% in FY12. FY13 receivables stand at 36
days. NTPC added 3.2GW at the standalone level and 4.2GW at the
consolidated level, in line with the company’s original FY13 target. In light
of the coal shortages, SEB financial stress, and execution issues faced by
the sector, these are good outcomes, in our view.
Confident of getting fresh coal blocks (reserved for government
enterprises) when allocation happens. NTPC has applied for fresh blocks
to support 8.46GWpipeline capacity under development (not yet tendered).
We raise our Mar-14 PT slightly to Rs175 on housekeeping changes.
NTPC offers the prospect of a 7.2% PAT CAGR over FY12-17. NTPC
trades at 11.9x FY14E EPS – cheap in a historical context and relative to
regional utilities. Slippages in execution and lower fuel availability than
expected are downside risks, and vice versa for upside risks.
