NTPC power - generation - distribution industries NTPC

NTPC Ltd (updated - 01 Feb 2012)
Power utility NTPC’s earnings for the quarter to December 2011 were impacted mainly because of a higher fuel cost which has had a cascading effect of slowing down the company’s pace of capacity addition.

That in fact is the bigger concern.

In the December quarter, NTPC’s revenue increased 14.2%, but its profit declined 10.1%. Profit before interest depreciation and tax, or PBIDTA, at 24.5% was the lowest in the last 10 years.

The main reason being the higher fuel cost, resulting from imported coal. NTPC operates on a fuel cost pass through mechanism and passes this increased fuel cost through an increase in tariff.

Financially weak state electricity boards which are unable to purchase power at higher rates want the utility to operate at lower capacity utilisation.

So the rise in net sales is from higher tariffs and not necessarily from the increase in volumes from higher generation. This lower capacity utilisation reduces profitability and overall return on investments.

The fuel issue has been a sticky one and one which has been factored in the company’s stock price. Fuel cost has remained as high as 70% of the total net sales for the last three quarters compared with 60-62% during the previous financial year.

The fear of lack of fuel availability for its plants has weighed heavily on the company’s capacity addition and capital expenditure plans. Earlier, the company had provided for a guidance of a total capacity addition of 4,320 megawatt (MW) this fiscal. So far it has added only 1,820 megawatt capacity.

Considering this, the company will have to add around 2,500 MW in this quarter to meet its target. That appears highly unlikely.

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Besides this, its capital expenditure outlay for the current fiscal is likely to be revised from the earlier number of Rs 270 crore.

Due to this high slippage rates in capacity addition in the past, the power utility’s earnings have grown at a tepid rate of 7% over the last four years.

This has resulted in a continuous de-rating of its trading multiples. The company has nearly 20,000 MW under construction and it is the timely commissioning of its upcoming plants that will drive the company’s future earnings and help in re-rating of the stock.
Source - Economic Times

NTPC Ltd (updated - 28 Mar 2012)
National Thermal Power Corporation or NTPC has shown higher capacity availability or plant availability factor during the first two months of the current quarter, indicating improved coal supply, according Central Electricity Authority data. This augurs well for the state-run company considering that the previous two quarters were not so good and earnings declined due to lack of coal availability. This led to concerns over capacity availability of its thermal plants, which is directly linked to availability of coal.

The plant availability factor, or PAF, of a plant is the maximum time it can produce electricity over a given period and is mainly linked to fuel availability. Higher the availability of fuel, higher will be the PAF. NTPC’s PAF for the first two months of the quarter was 95%.

The company witnessed PAF of 83% and 85% for the second and third quarters of FY12, respectively, while the average for the past four years was close to 90%. Lower fuel availability in the previous two quarters can be attributed to excessive rains, which impacted coal mining and transporting operations. The main reason for the higher availability of coal since January is improved supply of coal from Coal India. Materialisation of coal from Coal India has been around 95% in the first two quarters of the current quarter. NTPC is hopeful that it will remain at the same level in the coming year too.

Besides this, the fuel supply agreement to be signed according to the advice given by the Prime Minister’s Office (PMO) to Coal India will help NTPC secure coal for its 5 GW capacity, which is expected to become operational in FY13. Fuel shortage and slow capacity addition have led to continuous multiple (valuation) de-rating of the company over the past few years. Timely commissioning of this capacity, which is in the final stages of execution, and higher availability of coal can be a positive trigger.
Source - Economic Times