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MEEF - Middle East Engineering Projects News & Releases
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Power surge
POUND WISE
Mitali Wagle
/ Mumbai
To
maintain its leadership position
in the power sector, PSU giant
NTPC is taking all the right
steps forward.
Though a long-term story, the
mega power plans promise a
robust growth trajectory for
power generation companies.
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 With rising competition from
private sector players, leader
National Thermal Power
Corporation (NTPC) is making the
right moves to become a fully
integrated power player.
Not only does it plan to double
capacity by 2012, but is looking
at alternative ways of making
power to boost realisations.
Analysts think the stock is a
good bet for long-term
investors.
NTPC boasts of a 20 per cent
market in installed capacity and
generates 28 per cent of
electricity in the country.
While its core business of
engineering, construction and
operation of power plants brings
more than 90 per cent of
revenues, consultancy services
to power utilities on all
aspects of power businesses chip
in the rest.
Of
NTPC’s present generation
capacity of 26,194 MW, 84 per
cent is coal dominated, while
the remaining 16 per cent is gas
based. In
FY06, the company generated 108
billion units of electricity,
7.4 per cent higher than
previous year. During the same
period, the company enjoyed
plant load factor of 88 per cent
in its coal plants against the
industry average of 73 per cent.
With an average cost of Rs 1.4
per kilowatt-hour, NTPC is the
lowest cost producer as its
thermal power projects are
located near collieries to
reduce expenses and
transportation time.
|
HIGH ENERGY
Plant Load Factor (%) |
|
Year |
NTPC |
Ind. Avg. |
|
FY02 |
81 |
66 |
|
FY03 |
84 |
69 |
|
FY04 |
84 |
69 |
|
FY05 |
88 |
70 |
|
FY06 |
88 |
69 |
|
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Growing big
Thanks to robust macro factors
India is poised for a grand
take-off, however the power
sector remains a major
hindrance. At
present, India has peak power
deficit of 12.8 per cent and
needs to add 10,000 MW capacity
each year over the next decade
to plug the ever increasing
demand-supply gap. The mega
power plans, announced in the
last Budget, are likely to augur
well for power generation,
transmission and equipment
makers.
Gauging the tremendous business
scope, NTPC has chalked out
major expansion and
diversification plans to grab a
share of the opportunity ahead.
The past couple of years have
seen a spurt in the number of
independent power producers and
aggressive expansion plans of
existing private players.
Despite rising competition, NTPC
is well poised to maintain its
dominant position due to its
plans of doubling its generation
capacity to over 51000MW by
March 2012 to over 70,000 MW by
2017.
The company will add around
22,000 MW capacities during the
Eleventh Plan (2008-2012) by
setting up new plants, expanding
existing plants and acquiring
state electricity board
stations.
Around 70 per cent of the
additional expenditure would be
financed through borrowings and
the rest will be funded through
internal accruals. Of the 22,000
MW, around 11,500 MW of capacity
is already under various stages
of construction and a total of
3,700 MW will be commissioned
during FY07.
Hydro and nuclear foray
Sensing the opportunities in
related power businesses and
speedy pace of competition, NTPC
is also diversifying into hydro
and nuclear power generation.
NTPC is in talks with Nuclear
Power Corporation of India to
foray into nuclear power
generation and plans to set up a
2,000 MW nuclear power plant by
2017.
The company is bidding for 4,000
MW coal based ultra mega
projects and its expertise in
operating coal based thermal
power plants, low tariffs and
high plant load factor will give
it an edge over other bidders.
NTPC has taken up 4,500 MW
hydroelectric power projects in
Arunachal Pradesh and plans to
set up a merchant power plant of
2,000MW of these hydro
capacities to earn higher
margins. Considering low
generation cost of hydro power
and a good demand in the
short-term power market, this
step too will boost the
company’s bottom line.
Towards being an integrated
player
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Fuel supply at affordable prices
has become a major challenge, so
NTPC is taking the backward
integration route by foraying
into coal mining and gas
exploration. A
consortium led by NTPC has won
an oil exploration block in
Arunachal Pradesh and this move
marks the company’s first step
towards procuring captive gas.
The company is in talks with
Nigerian government to procure
relatively cheap gas supply for
its domestic plants in return
for offering expertise on
operating power stations.
The company has been allocated
eight captive coal-mining
blocks; two of them are to be
developed through joint ventures
with Coal India.
The first of these mines at
Pakhri Barwadih, north Karanpura,
is under development and will
commence coal production from
2008. By
the end of 2017, nearly 20 to 25
per cent of NTPC’s coal
requirement will be met from its
own mines and it will become the
second largest coal producer in
India, only next to Coal India.
NTPC has also forayed into
transformers and electrical
works through a joint venture
with Transformers and
Electricals, Kerala.
As
a by-product of its generation
operations, NTPC produces huge
quantities of ash which is ideal
for use in cement, concrete and
building material. It
plans to make bricks and sell it
as construction material to
domestic and overseas players.
The company has already
despatched clean fly ash
consignments to clients in the
Middle East. The company is
planning to set up a power
equipment plant to reduce time
taken to commission projects
from five years to three years.
|
STRENGTH IN NUMBERS |
|
(Rs crore) |
FY06 |
FY05 |
FY04 |
|
Net Sales |
26318.60 |
22732.40 |
19145.80 |
|
Y-o-Y growth (%) |
15.78 |
18.73 |
0.52 |
|
Operating Profit |
9861.80 |
9732.10 |
11282.60 |
|
Y-o-Y growth (%) |
1.33 |
-13.74 |
79.81 |
|
OPM (%) |
37.47 |
42.81 |
58.93 |
|
Net Profit |
5820.20 |
5807.00 |
5260.80 |
|
Y-o-Y growth (%) |
0.23 |
10.38 |
45.83 |
|
NPM (%) |
22.11 |
25.55 |
27.48 |
During FY06, NTPC’s net sales
increased by 16 per cent to Rs
26,142 crore and net profit rose
marginally by 0.2 per cent to Rs
5,820 crore. However operating
and net margins increased by 35
and 22 basis points,
respectively.
At
the current market price of Rs
128.8, the scrip trades at 18.1
times FY06 earnings. The stock
is trading at 16.1 and 15.2
times its FY07 and FY08 earnings
estimates.
While analysts vouch for its
business model, expansion plans
and the management’s aggressive
approach, they warn that NTPC is
a long-term investment and
investors should not expect
substantial upsides in the short
term.
Pradeepkumar Dhamdhere of Anand
Rathi Securities, says, “No
doubt NTPC is the best bet in
the power generation sector, but
considering the fixed returns in
the power business, one cannot
expect any miraculous growth
numbers. The stock however can
bring good returns for long-term
investors.”
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