Electrifying India ft NTPC – A primer on the stock

“For FY 22-23, the Board of Directors have recommended a final dividend of Rs.3 per share, subject to the approval of our shareholders at the upcoming AGM, this final dividend is in addition to the interim dividend already paid at Rs.4.25 per share. So, put together it will become Rs.7.25 per share”

Management Commentary – Q1FY23 Earning Call

Stock data

Ticker	NTPC
Exchange	BSE and NSE
Industry	Power Generation and Supply

Price Performance:

Last 5 days	+2.18%
YTD	+31.25%
Last 1 year	+38.77%

Company description:

NTPC (National Thermal Power Corporation) Ltd along with its subsidiaries/ associates & Joint Ventures is primarily involved in generation and sale of bulk power to State power utilities. Other business of the group includes providing consultancy, project management & supervision, energy trading, oil & gas exploration and coal mining.

Power Plants Portfolio:

As of August 2023, the company has a power portfolio of ~ 73,024 MW from 89 power plants.

Out of total capacity, ~81.5% comes from coal plants, followed by gas/ liquid fuel plants (~9%), hydro (~5%) & renewables (~4.5%).

It owns 17% of total installed capacity in India with ~25% share in electricity generation in India. Company’s allocated capacity is well diversified across regions. As on August 2023, none of a single region contributes more than 40% of total allocated capacity of company

PLF Factor:

The company has been operating at higher PLF from its thermal power stations as compared to All India thermal PLF for the last 5 years. NTPC Coal Stations achieved PLF of 75.9% against All India PLF of 64.2% in FY23.

Under Construction Assets:

As of August 2023, the company has added 4 GW  of power in FY23 while 17 GW of power is under construction & 18 GW is under planning

Vision:

The company wants to expand its power capacity from ~63 GW to 130 GW by 2032. It also aims to increase its concentration of non-fossil fuel assets from 7% of total capacity to 30% by 2032.

Acquisitions:

During FY20, the company acquired the entire stake of GOI in THDC India Ltd and North Eastern Electric Power Corporation Ltd (NEEPCO). It acquired ~75% stake of THDC and 100% stake of NEEPCO from Govt of India for a total consideration of ~11,500 crores.

THDC and NEEPCO have installed capacity of ~3,300 MW and under construction capacity of ~3,100 MW.

Coal Needs:

For the company’s coal requirements, the company has long term fuel supply agreements for total annual contracted quantity (ACQ) of ~175 MnTPA with Coal India Ltd (CIL) and Singareni Collieries Company Ltd (SCCL).

The company owns 3 coal blocks i.e. Pakri Barwadih, Dulanga & Talaipalli coal mines.

The ultimate capacity of these mines are ~103 MnTPA when all mines reach their peak capacity. The company managed to produce 23 MMT in FY23 and It aims to produce 34 MMT in FY24.

The estimated geographical reserves of these coal blocks are 5 billion tonnes.

Cost-Plus tariff Structure

The company maintains robust profitability due to long-term PPAs backed by a cost-plus tariff structure for sale of power to DISCOMS.

Financials:

What we like:  

1. Steady Power Demand to aid growth: 

NTPC benefits from the consistent demand for electricity in India. In FY 2020-21, India’s power demand stood at around 1,400 billion units, indicating a continuous need for electricity, which NTPC contributes to significantly. Also, NTPC today generates 25% of the electricity consumption in India which is further expected to rise in the future thus contributing to the topline of the company.

2. Government Support: 

As a government-owned entity, NTPC enjoys support and stability. In FY 2020-21, the Indian government launched the “Aatmanirbhar Bharat Abhiyan” to strengthen various sectors, including power. NTPC, being a key player, is likely to benefit from such initiatives.

3. Diversified Power Generation:

NTPC generates power from multiple sources. In July 2021, NTPC had a total installed capacity of around 66 GW, with approximately 30% of that coming from renewable sources like solar and wind. Further the company expects to increase this renewable power capacity to 60 GW by 2032.

4. Strong Infrastructure: 

NTPC’s reliable power generation infrastructure helps in consistent power supply. In FY 22-23, NTPC achieved a plant load factor (PLF) of over 75.9% across its coal-based plants, indicating efficient plant utilization.

5. Experienced Management: 

NTPC’s experienced management is reflected in its operational efficiency. This can be further witnessed as  NTPC’s PLF for its coal-based plants remained consistently high even during the COVID-19 pandemic.

6. Long-Term Contracts: 

NTPC often signs long-term power purchase agreements (PPAs). For example, in FY 2020-21, NTPC signed a 25-year PPA for 300 MW solar power with the Solar Energy Corporation of India (SECI), ensuring stable revenue streams.

Factors to consider:

1. Regulatory changes can impact NTPC’s operations. For instance, changes in coal pricing regulations can affect production costs, impacting profitability.
2. Fluctuations in fuel prices can affect NTPC’s costs. For instance, rising coal prices can impact the cost of power generation, potentially squeezing margins.
3. Environmental concerns drive the need for emission reduction. NTPC’s efforts to comply with emission norms involve investments. For example, NTPC allocated funds for a project to install flue gas desulfurization systems to reduce emissions.
4. Being a government-owned entity, NTPC’s decision-making processes can be slower. Delays in obtaining approvals or implementing projects can impact operational agility.