21 November 2019
| Sector: Utilities
NTPC to acquire NEEPCO and THDC
Transaction value yet to be finalized
Government to sell stake in NEEPCO and THDC
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
1138.9 / 15.9
146 / 107
As part of the Indian government’s strategic divestment program, the cabinet
has approved the stake sale in NEEPCO (GoI stake: 100%) and THDC (GoI: 74%;
UP govt.: 26%) to NTPC (GoI: 54.5%).
Details on the transaction value though are still awaited. According to our
interaction with NTPC, the purchase value for these assets will be decided after
an internal assessment. This process could take another 2-3 months.
Financials Snapshot (INR b)
THDC and NEEPCO: A hydro dominated portfolio
Shareholding pattern (%)
Sep-19 Jun-19 Sep-18
THDC (~1.5GW) and NEEPCO (~1.45GW) are broadly a hydro dominated
portfolio, with combined hydro capacity of 2.3GW (refer exhibits 1/2).
Acquisition of the same would increase NTPC’s commercial capacity by ~5%.
stable portfolio of hydro:
THDC operates 1.4GW of hydro plants and
~0.1GW of renewable capacity. According to tariff orders, regulated equity for
its hydro portfolio stands at ~INR32b. Adj. profits were at INR8.5b for FY19,
implying a core RoE of ~19-20% (base RoE: 16.5%). Overall, RoE is at ~9-10%
given CWIP and WC investments.
u/r likely denting profitability:
NEEPCO’s 1.45GW of operational
portfolio includes a mix of hydro (0.9GW) and thermal (0.5GW)
capacities. According to our analysis of tariff orders, the regulated equity base
would stand at ~INR33b. However, annual PAT for NEEPCO stands at just
~INR2b (implied PAT at 15.5% RoE should have been ~INR5b). We believe that
this could be led by: (1) F/C under-recoveries for its thermal plants (given
actual PAF is lower than normative availability factors) and (2) lower capital
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Value accretion dependent on transaction value and upcoming projects
Value accretion would be dependent on the actual acquisition value and the
progress on under-construction projects at THDC and NEEPCO. THDC and
NEEPCO together have 2.1GW of hydro assets under construction along with
other projects that are awaiting/have recently received approvals. A total of
INR117b of works are under CWIP (for THDC + NEEPCO). Given the long
gestation period and delays (related to clearances, resettlement &
rehabilitation issues) in the commissioning of hydro projects, there remains a
risk to execution timelines. NEEPCO’s Kameng (600MW) project though is
expected to commission this year, which would be a positive.
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
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