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NTPC (NTPC.BO)
Neutral Equity Research
Captives to improve coal supplies and ROE, but delays continue
What's changed
NTPC awarded a mining contract to Thiess, an Australian firm, for the Pakri
Barwadih captive coalfield. Management expects the mine to produce about
3mn tons in FY12 and scale up to 15 MTPA by FY14. This block was
allocated to NTPC in 2004 with initial target of starting production in 2010.
The land acquisition progress is underway for Chatti Bariatu and Kerandari
mines, which would add 13 MTPA of coal supply by FY2014, as per NTPC.
Implications
With the awarding of mining contract coupled with significant progress in
land acquisition and receipt of other approvals, we see high visibility of coal
production from Pakri Barwadih mine in FY12E. We estimate proportion of
coal from captive mines to increase from 2% in FY12E to about 9% in FY14E.
The ramp up in captive coal production will lead to two fold benefit for
NTPC, in our view: 1) Less dependence on Coal India for its incremental
capacities. This will help NTPC to sustain current plant availability of 90%
and continue to earn incentives; 2) Increase in regulated equity with the
capitalization of capex incurred on this mine. We estimate regulated equity
to increase by 7% on commencement of these mines and ROE likely to
improve as low yield cash gets converted to equity which yields 16% ROE.
Despite this positive news flow, we remain Neutral rated on NTPC as
delays in execution of its upcoming power capacities continue. We expect
NTPC to add about 2GW in FY11E (1.5GW YTD) vs its guidance of 4.2GW
(including JVs). We reduce our EPS estimates by 5%-10% over FY11E-13E
to reflect the delays in upcoming capacities.
Valuation
Our 12m DCF based TP of Rs202 (earlier Rs205) implies potential upside of
4%. NTPC trades in line with 5-yr historical average on FY12E P/B and P/E.
Key risks
Upside/downside: Commissioning of capacities earlier or further delays.
INVESTMENT LIST MEMBERSHIP
Neutral
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC (NTPC.BO)
Neutral Equity Research
Captives to improve coal supplies and ROE, but delays continue
What's changed
NTPC awarded a mining contract to Thiess, an Australian firm, for the Pakri
Barwadih captive coalfield. Management expects the mine to produce about
3mn tons in FY12 and scale up to 15 MTPA by FY14. This block was
allocated to NTPC in 2004 with initial target of starting production in 2010.
The land acquisition progress is underway for Chatti Bariatu and Kerandari
mines, which would add 13 MTPA of coal supply by FY2014, as per NTPC.
Implications
With the awarding of mining contract coupled with significant progress in
land acquisition and receipt of other approvals, we see high visibility of coal
production from Pakri Barwadih mine in FY12E. We estimate proportion of
coal from captive mines to increase from 2% in FY12E to about 9% in FY14E.
The ramp up in captive coal production will lead to two fold benefit for
NTPC, in our view: 1) Less dependence on Coal India for its incremental
capacities. This will help NTPC to sustain current plant availability of 90%
and continue to earn incentives; 2) Increase in regulated equity with the
capitalization of capex incurred on this mine. We estimate regulated equity
to increase by 7% on commencement of these mines and ROE likely to
improve as low yield cash gets converted to equity which yields 16% ROE.
Despite this positive news flow, we remain Neutral rated on NTPC as
delays in execution of its upcoming power capacities continue. We expect
NTPC to add about 2GW in FY11E (1.5GW YTD) vs its guidance of 4.2GW
(including JVs). We reduce our EPS estimates by 5%-10% over FY11E-13E
to reflect the delays in upcoming capacities.
Our 12m DCF based TP of Rs202 (earlier Rs205) implies potential upside of
4%. NTPC trades in line with 5-yr historical average on FY12E P/B and P/E.
Key risks
Upside/downside: Commissioning of capacities earlier or further delays.
INVESTMENT LIST MEMBERSHIP
Neutral
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