For NTPC, Future Looks Brighter Now
CIL’s higher production growth helped co maintain plant availability factor consistently at over 85%
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.