Maintain Buy on NTPC - Motilal Oswal

NTPC: CMD meeting highlights, visit to Growth Management Centre

FY11/FY12 marks an important milestone in the growth trajectory for NTPC

Mr Arup Roy Choudhury joined NTPC recently as Chairman & Managing Director. Our interactions with Mr Choudhury and Mr A K Singhal, Director (Finance), provided interesting updates on the exciting growth opportunity ahead. We also visited NTPC's Growth Management Centre set up in March 2010, which is the nerve centre of the company's project management and project operations approach. It enables monitoring of all operational and ongoing projects on a real time basis.

Attempts to put incremental 30GW+ projects under construction over the next 1 year; target capacity of 75GW by FY17

- Management re-iterated its guidance to achieve 75GW capacity by FY17E through (1) systematic approach of increasing the quantum of projects under construction, (2) expediting commissioning of projects under construction, and (3) strategy to mitigate fuel supply risk on incremental capacity.

- We believe that FY11/FY12 marks an important milestone in the growth trajectory for NTPC given: i) ambitions to sign long-term PPAs for 25GW in next 5-6 months vs cumulative 55GW till date, ii) target to award BTG contracts of 30GW+ in next 1 year vs 2.5GW awarded over past 2.5 years, and iii) accelerated pace of capacity additions (target to add 9GW in FY11/12 vs additions of 9GW over past 6 years).

Strategies to mitigate fuel supply risk in place; dependence on Coal India for incremental coal supplies to come down meaningfully

- Coal requirement for 75GW operational capacity will nearly double to 265m tons by FY17E (at operating factor of 90%) vs 136m tons as at FY10. NTPC currently has firm contract (Fuel Supply Agreement) with Coal India for 126m tons, which meets 90% of the coal requirements. Going forward, of the incremental 140m tons requirement till FY17, sourcing from Coal India will be at 50m tons (36% of incremental requirement) and balance would be met through mix of captive coal (45-50m tons by FY17E) and coal imports.

- In existing projects, NTPC is also making attempts to modify the equipment design to enable it to blend 25-30% imported coal. This will enable the company to further improve the PLF further (FY10 at 90%+).

- On captive coal supply, NTPC has access to 4.8b tons of coal reserves (including from 2 coal blocks - Chichro Patrismal and Brahmini in JV with CIL). Production potential stands at 53m tons from own blocks and 20m tons from blocks in JV with CIL. Mining plan has already been approved for the 53m tons of coal production, and initial supplies will commence from FY12.

Earnings CAGR of 14% through FY14E; core earnings growth strong at 22%

- We expect NTPC to deliver net earnings CAGR of 14% over FY10-14E, led by impressive 22% earnings CAGR in core generation profit. Decline in other income given conversion of cash into CWIP is leading to lower CAGR in reported profit.

Maintain Buy with price target of Rs240.

Source : Equity Bulls

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