4 Recommendation SUBSCRIBE SUBSCRIBE FROM A LONG TERM VIEW CMP Rs. 152.3 Target Price Sector Stock Details N/A Electric Utilities BSE Code 532555 NSE Code Bloomberg Code NTPC NTPC IN Market Cap (Rs crs) 125,578 Free Float (%) 15.5% 52- wk HI/Lo (Rs) 190/139 Avg. volume BSE (Quarterly) 254,402 Face Value (Rs) 10.0 Dividend (FY 12) 40% Shares o/s (Crs) 824.5 Relative Performance 1Mth 3Mth 1Yr NTPC -1.2% -7.6% -12.4% Sensex -0.2% 4.5% 11.0% 200 190 180 170 160 150 140 130 6-Feb 6-Apr 6-Jun 6-Aug 6-Oct 6-Dec Shareholding Pattern 31 st Dec 12 Promoters Holding 84.5% Institutional (Incl. FII) 11.9% Corporate Bodies 1.6% Public & Others 2.0% Shraddha Shah (022 3926 8174) shraddha.shah@nirmalbang.com Sunil Jain, HOR Retail (022 3926 8196) sunil.jain@nirmalbang.com Year Net Sales (Rs crs) Growth (%) EBITDA (Rs crs), set up in 1975, is India's largest power company with a presence in the entire value chain of power generation business. The total installed capacity of the company is 39,674 MW (including JVs) with 16 coal based and 7 gas based stations, located in India. In addition under JVs, 7 stations are coal based. has 84.5% of its stake held by the promoters implying 15.5% public share holding. The company has announced that the Government of India (promoter) intends to reduce its stake to comply with minimum public shareholding norm of 25.0% and to meet its FY13 divestment target through an offer for sale (OFS). The government is looking to raise about Rs 11,400 cr from the NTPC stake sale. NTPC proposes to sell an aggregate of 78.32 cr shares representing 9.50% of the total share capital of the company. The offer for sale opens today at a floor price of Rs 145. At this price the share is trading at one year forward PE of 11.0x. NTPC has diversified into related business areas of hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution which will ensure robustness and growth of the company. The company has set a target to have an installed power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources (RES) including hydro. By 2032, non-fossil fuel based generation capacity shall make up nearly 28% of NTPC s portfolio. Installed Capacity by FY13 end is expected to be 35,810 MW and 38,028 MW by FY14 end. NTPC s Installed capacity, plant performance and operational efficiency depict the company s outstanding performance across a number of parameters such as 85% PLF achieved by the coal based stations (as against the national average of 73.32%) and 89.5% Availability Factor in FY12. Recently, the Government has taken initiatives to improve the financial health of the SEBs through Debt Restructuring and Fuel supply pacts and PPAs, and has also approved tariff revisions in some states. Further, any softening in global prices of coal will be a further positive for To secure its fuel supply, NTPC is importing low GCV coal for increasing the blending ratio and optimizing cost of generation, and is developing its own mines for captive coal supply. Given the growing power demand situation in India, the strong fundamentals of the company, stable ROE, capacity addition plans and Government approach towards fast-tracking the coal pricing and availability mechanism, which will benefit, we are positive on the company s long term prospects. We believe that at the floor price of Rs 145, is an attractive investment opportunity given that the stock is trading at historically low valuations as those seen in 2008. At the CMP, the stock trades at a PE of 11.0x and P/BV of 1.44xof its consensus expected FY14 EPS and BV of Rs 13.8 and Rs 106 respectively. We recommend subscribing to the offer for sale from a one year perspective. Margin (%) PAT (Rs crs) Margin (%) EPS (Rs) PE (x) EV/Sales EV/EBITDA FY10 48,201.3 13.1% 13,019.4 27.0% 8,714.6 18.1% 10.6 14.4 3.5 12.8 FY11 57,607.2 19.5% 14,436.8 25.1% 9,348.2 16.2% 11.3 13.4 3.0 11.9 FY12 65,893.3 14.4% 15,441.9 23.4% 9,814.7 14.9% 11.9 12.8 2.7 11.6 9mFY13 47,854.5 6.6% 12,323.6 25.8% 8,241.0 17.2% 9.99 - - - 1 P a g e
Company Description, set up in 1975, is India's largest power company. It is emerging as an Integrated Power Major, with a significant presence in the entire value chain of power generation business. Currently, NTPC generates power from Coal and Gas. The total installed capacity of the company is 39,674 MW (including JVs) with 16 coal based and 7 gas based stations, located across the country. In addition under JVs, 7 stations are coal based. This accounts for 18.5% of India s total installed capacity as of March 31, 2012. NTPC generated 240 BU (bn units) of electricity, ~27.4% of India s total generation in FY12. Installed Capacity by FY13 end is expected to be 35,810 MW and 38,028 MW by FY14 end. NTPC envisages to have an installed capacity of 128,000 MW (128 GW) by the year 2032 with a well diversified fuel mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8% hydro power based capacity. The company has also diversified into allied businesses of hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution. Investment Rationale Diversified to ensure robustness and growth NTPC has adopted the Diversification Strategy in related business areas to ensure robustness and growth of the company. It has diversified into hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution. With an increasing presence in the power value chain, NTPC is well on its way to becoming an Integrated Power Major. Hydro Power: To have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro project in HP. Two more projects have also been taken up in Uttarakhand. Its wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW Renewable Energy: In order to broad base its fuel mix, NTPC has plans of capacity addition of about 1,000 MW through renewable resources by 2017 Nuclear Power: A Joint Venture company Anushakti Vidhyut Nigam Ltd. has been formed (with 51% stake of NPCIL and 49% stake of NTPC) for development of nuclear power projects in India Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary, and the 2 nd largest power trading company in India, was created for trading power leading to optimal utilization of NTPC s assets. To facilitate power trading in the country, National Power Exchange Ltd., a JV of NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input by cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly owned subsidiary, was set up for distribution of power, which is engaged in Rajiv Gandhi Gramin Vidyutikaran Yojana programme for rural electrification Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity, for which NTPC has formed JVs with BHEL and 2 P a g e
Bharat Forge Ltd. NTPC has also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers Capacity additions to drive future growth Installed Capacity NO. OF PLANTS CAPACITY (MW) NTPC Owned Coal 16 30,855 Gas/Liquid Fuel 7 3,955 Total 23 34,810 Owned By JVs Coal & Gas 7 4,864 Total 30 39,674 The total installed capacity of the company is 39,674 MW (including JVs) with 16 coal based and 7 gas based stations, located across the country. In addition under JVs, 7 stations are coal based & another station uses naptha/lng as fuel. Installed Capacity by FY13 end is expected to be 35,810 MW and 38,028 MW by FY14 end. The company has set a target to have an installed power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources (RES) including hydro. By 2032, non fossil fuel based generation capacity shall make up nearly 28% of NTPC s portfolio. Source: Nirmal Bang Securities, Company data 12th Plan NTPC Own Capacity Addition: 11,148MW 12th Plan Capacity Addition Through JVs/Subs: 2,890MW NTPC has already Added 2,660MW as of December 31, 2012 and plans to add 14,038 MW in the 12 th Plan. The capacity addition under implementation stage NTPC commissioned 2,820 MW in 2011-12, the highest ever in a single year. 6,870 MW were added in the past two years which is almost 20% of the total capacity added since inception of NTPC. Another 16,809 MW is under construction. 3 P a g e
Coal PROJECT STATE MW 1. Mouda I( 500) Maharashtra 500 2. Vallur I -JV with TNEB ( 500) Tamilnadu 500 3. Vallur Stage-I Phase-II -JV with TNEB (500) Tamilnadu 500 4. Bongaigaon I (3 x 250) Assam 750 5. Mouda II Maharashta 1320 6. Rihand Stage-III(500) Uttar Pradesh 500 7. Vindhyachal-IV (500) Madhya Pradesh 500 8. Muzaffarpur Expansion (2x195) JV with BSEB Bihar 390 9. Nabinagar TPP-JV with Railways (4 x 250) Bihar 1000 10. Barh II (2 X 660) Bihar 1320 11. Barh I (3 X 660) Bihar 1980 12. Solapur I (2 X 660) Maharashtra 1320 13. Kudgi(3 X 800) Karnataka 2400 14. Meja (2 X 660) Uttar Pradesh 1320 15. Vindhyachal (500) Madhya Pradesh 500 16. Lara I (2 X 800) Chhatisgarh 1600 Hydro 1. Koldam HEPP ( 4 x 200) Himachal Pradesh 800 2. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 520 3. Singrauli CW Discharge(Small Hydro) Uttar Pradesh 8 4. Lata Tapovan Uttarakhand 171 Solar 1. A & N Solar PV (5) Port Blair 5 2. Dadri Solar PV (5) Uttar Pradesh 5 Total 17,909 Source: Nirmal Bang Securities, Company data Capacity Break up by Fuel Gas 11.40% Coal 88.60% Source: Company data, Nirmal Bang Research Long-term Fuel Security - NTPC has long-term gas supply agreements with GAIL under APM for supply of gas to all directly owned gas power stations at regulated pricing under Government orders 4 P a g e
- It also has domestic natural gas (KG-D6) supply agreements on a long-term basis at prices approved by GoI for four plants Details of Gas/RLNG tie ups for NTPC Existing Gas Stations Contracted Quantity Gas Type Source/Supplier (MMSCMD) Contract Valid Till APM / PMT Gas ONGC / GAIL 14.48 2021/2019 Non-APM Gas ONGC / GAIL 0.82 2016 KGD6 Gas RIL / Niko / BPEAL 2.30 2014 RLNG-Long-term GAIL 2.00 Dec-19 Spot/Fallback RLNG Domestic suppliers Source: Company data, Nirmal Bang Research Based on demand from time to time On reasonable endeavour basis Above average operational efficiency NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency. NTPC s Installed capacity, plant performance and operational efficiency depict the company s outstanding performance across a number of parameters. For six months period of a fiscal 2012-2013, the PLF for coal station had declined from 82.58% to 80.56%. PLF for the gas station was 57.66% in Q2FY13 as compared to 60.84% in the corresponding quarter in the previous fiscal, a decline of 3.18 percentage points. On corresponding six months basis, gas station received 12.05 MMSCMD as against 12.34 MMSCMD received in the corresponding period of previous year. For 9mFY13, NTPC had stand-alone AVF of 85.7%, PLF of 81.8% against all-india PLF of 69.6%. Sound Financials and Cash Rich is a cash rich company with a cash balance of Rs ~18,000 cr on books in FY12 with a D/E ratio of 0.8x despite high capex. The company has delivered a stable ROE of about 13-14% over the last 4-5 years. The company has been able to sustain its profitability despite the challenging times for the Power sector in India, and we believe NTPC will be a key beneficiary of any improvement in domestic coal availability which will lead to higher generation growth and will reflect in its financials. NTPC is also assured ROE of 14.5% on its investments. Regulated Equity Against $5.9bn committed in August 2012, NTPC has achieved regulated equity of $5.6bn. 33% growth is expected in Regulated equity in FY14E over FY12. 4.3 4.6 4.9 5.6 5.9 6.5 FY10 FY11 FY12 Dec-12 FY13E FY14E Source: Company data, Nirmal Bang Research 5 P a g e
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Financial Performance PAT & PAT Growth 80000 60000 40000 20000 0 Sales & Sales Growth 19.5% 14.5% 13.1% 14.4% FY09 FY10 FY11 FY12 Sales Growth 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 12,000 10,000 8,000 6,000 4,000 2,000-8.3% 7.7% 7.3% 5.0% FY09 FY10 FY11 FY12 PAT Growth 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Recent Developments & Key Risks About 90% of NTPC s 39.6 GW installed capacity is coal based. Inadequate fuel supply (leading to lower PLF), costlier imported coal, current financial status of the state utilities (SEBs), delay in land acquisitions and clearances and tariff revisions and distribution reforms and any deallocation of mines by the Coal Ministry can impact operating and hence the financial performance of the company, and continue to act as an overhang on the stock. Recently, the Government has taken initiatives to improve the financial health of the SEBs through Debt Restructuring and Fuel supply pacts and PPAs. The Government has also approved tariff revisions in some states. Further, any softening in global prices of coal will be a further positive for thermal power generating companies like NTPC. To secure its fuel supply, NTPC is taking the Initiative of importing low GCV coal for increasing the blending ratio and optimizing cost of generation, and is developing its own mines for captive coal supply. P/E chart Valuation & Outlook Given the growing power demand situation in India, the strong fundamentals of the company stable ROE, capacity additions and Government approach towards fast-tracking the coal pricing and availability mechanism, which will benefit, we are positive on the company over a one year perspective. We believe that at the floor price of Rs 145, is an attractive investment opportunity given that the stock is trading at historically low valuations as those seen in 2008. At the CMP, the stock trades at a PE of 11.0x and P/BV of 1.44xof its consensus expected FY14 EPS and BV of Rs 13.8 and Rs 106 respectively. We recommend subscribing to the offer for sale from a one year perspective. P/BV chart 280.00 260.00 240.00 220.00 200.00 180.00 160.00 140.00 120.00 100.00 80.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 Close -Unit Curr 11.0 X 13.0 X 15.0 X 17.0 X 19.0 X Close -Unit Curr 1.5 X 2.0 X 2.5 X 3.0 X 3.5 X 6 P a g e
Financials (Consolidated) Profitability (Rs. In Cr) FY10 FY11 FY12 Balance sheet (Rs. In Cr) FY10 FY11 FY12 Net Sales 48,201 57,607 65,893 Share Capital 8,245 8,245 8,245 Fuel 30,188 36,414 43,303 Reserves & Surplus 54,372 60,139 66,030 Other Operating Expenses 5,054 6,756 7,149 Share Holder's Funds 62,617 68,385 74,276 Total Cost 35,182 43,170 50,451 Loans Funds 44,149 50,755 57,381 EBITDA 13,019 14,437 15,442 Def. Tax + Minority Int. + Def. Re 2,191 2,167 2,917 Dep 2,894 2,720 3,108 Total Liabilities 108,957 121,306 134,574 Op Income 10,125 11,717 12,334 Net Fixed Assets 76,486 89,718 106,159 Interest 2,078 1,726 2,135 Total Investments 11,778 8,357 6,545 Other Income 2,879 2,401 2,938 Current Assets 33,215 38,045 42,558 Extraordinary 0 0 0 Sundry Debtors 7,081 8,400 6,681 PBT 10,926 12,392 13,137 Inventories 3,533 3,911 4,178 Tax 2,211 3,044 3,323 Cash & Bank Bal 16,053 17,860 18,092 PAT (reported) 8,715 9,348 9,815 Loans & Adv. And Others 6,549 7,875 13,607 Shares o/s ( No. in Cr.) 825 825 825 Current Liabilities & Provision 12,908 15,274 20,688 EPS 10.6 11.3 11.9 Net Current Assets 20,307 22,771 21,870 Adj Cash EPS 14.1 14.6 15.7 Deferred Foreign Curr. Fluctuatio 386 459 0 Quarterly (Rs. In Cr) June.12 Sept'12 Dec'12 Total Assets 108,957 121,306 134,574 Net Sales 15960.0 16119.7 15774.9 Performance Ratio FY10 FY11 FY12 EBITDA 3836.6 4455.9 4031.1 Sales growth (%) 4853.7% 19.5% 14.4% Dep 760.2 786.5 828.8 EBITDA margin (%) 27.0% 25.1% 23.4% Op Income 3076.3 3669.4 3202.4 PAT margin (%) 18.1% 16.2% 14.9% Interest 499.4 303.5 530.4 ROE (%) 13.9% 13.7% 13.2% Other Inc. 678.9 816.6 722.0 ROCE (%) 9.5% 9.8% 9.4% PBT 3255.9 4182.5 3394.0 Valuation Ratio FY10 FY11 FY12 Tax 757.3 1040.2 794.0 Price Earnings (x) 14.41 13.43 12.79 PAT 2498.7 3142.4 2600.0 Price / Book Value (x) 2.01 1.84 1.69 Per Share Data FY10 FY11 FY12 EV / Sales 3.45 2.99 2.71 Reported EPS 10.6 11.3 11.9 EV / EBIDTA 12.77 11.94 11.58 BV per share 75.9 82.9 90.1 EV / Total Assets 1.53 1.42 1.33 Dividend per share 3.8 3.8 4.0 Dividend Yield 2.5% 2.5% 2.6% Source: Company data, Nirmal Bang Research 7 P a g e
NOTES Disclaimer: This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document. Nirmal Bang Research (Division of Nirmal Bang Securities Pvt. Ltd.) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001 Fax. : 022 3926 8010 8 P a g e