For NTPC, Fu­ture Looks Brighter Now

CIL’s higher pro­duc­tion growth helped co main­tain plant avail­abil­ity fac­tor con­sis­tently at over 85%

The Economic Times - - Smart -

ET In­tel­li­gence Group: NTPC’s op­er­a­tional per­for­mance is show­ing grad­ual im­prove­ment, thanks to im­prov­ing coal avail­abil­ity from Coal In­dia and re­viv­ing power de­mand.

The ther­mal (coal and gas) ca­pac­ity util­i­sa­tion or plant load fac­tor (PLF) of the com­pany was around 76.5% in March, 70 bps higher than a month agoand210bp­shigh­erthanayear­ago.

“We are see­ing bet­ter de­mand for power. Early on­set of sum­mer also helped,” said a com­pany of­fi­cial. An­a­lysts ex­pect, the ca­pac­ity util­i­sa­tion to touch 80% by FY18 af­ter the re- vi­val of fi­nan­cial health of state elec­tric­i­ty­board­sun­derthe­gov­ern­ment’s UDAY scheme. The scheme in­tends to pro­vide re­vival pack­age for the cash­strapped elec­tric­ity boards.

An­other pos­i­tive fac­tor is that NTPC has been able to bring down its fuel cost. Ac­cord­ing to the data avail­able, the en­ergy charges of some of the coal sta­tions are down by around 20% in the sec­ond half of FY16. “This is due to ra­tio­nal­i­sa­tion of coal link­ages, re­duc­tion in im­ported coal con­sump­tion, and en­force­ment of third party sam­pling of coal. Also, coal is eas­ily avail­able now as com­pared to a few years ago when we had to rely on im­ported coal,” said the of­fi­cial.

CIL’s pro­duc­tion growth for FY16 was close to 9%, one of the high­est in the last five years. As a re­sult the com­pany is able to main­tain its plant avail­abil­ity fac­tor (PAF) con- sis­tently over 85% and is el­i­gi­ble for ad­di­tional in­cen­tives. This means, if the power gen­er­a­tor is able to keep the PAF high for the buyer who can draw power as re­quire­ment but will have to pay ad­di­tional in­cen­tives for this. All this should help im­prove NTPC’s prof­itabil­ity and keep the re­turn on equity (RoE) high. Power com­pa­nies work on a reg­u­lated model and de­mand around 15.5% RoE. Ac­cord­ing to es­ti­mates, NTPC should be able to gen­er­ate around 18% RoE in­vested in power plants (the core RoE) due to ad­di­tional cost cut­ting and in­cen­tives. The stock trades at 1.2x FY17’s book value.

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