4 November 2011
Update | Sector: Utilities
NTPC
BSE SENSEX
S&P CNX
17,482
5,266
CMP: INR178
TP: INR229
Buy
Captive mines allotment to address fuel supply issues
Key LT positive; can support 18-20GW of incremental capacity
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
NTPC IN
8,245.5
203/160
-2/5/7
1,467.7
29.8
Possible restoration of de-allocated captive mines with reserves of 3b tons
Incremental captive mine allocations to support 8GW capacity
FSA signed for 16m tons in 2QFY12 with Coal India
Y/E March
2011 2012E 2013E
Sales (INR b)
548.7 675.0 770.6
EBITDA (INR b) 125.8 160.1 175.6
NP* (INR b)
79.6
EPS (INR)*
9.7
EPS Growth (%) -5.9
BV/Share (INR)
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/ Sales (x)
RoE (%)
82.3
18.4
2.2
13.2
3.2
12.2
88.0 103.2
10.7 12.5
10.5 17.3
89.3
16.7
2.0
11.3
2.8
12.4
96.3
14.2
1.8
11.2
2.6
13.5
Captive coal mines to meet ~45% of incremental coal demand in Twelfth Plan
Mr. Shriprakash Jaiswal (Union Minister of Coal) and Mr. Arup Roy Choudhury
(NTPC CMD) have reiterated restoration of five de-allocated coal blocks of NTPC
(reserves of ~3b tons) very shortly. While NTPC had been re-iterating restoration
possibilities in the past, the comments from Mr. Jaiswal are encouraging.
Coal ministry has further given in-principle approval for allotment of five coal blocks
through government dispensation route for additional ~8GW of capacity. This
further re-enforces the superior positioning of NTPC in the sector, already starved
of domestic fuel and lowering dependence on Coal India for capacity additions.
Thus, a very large part of the fuel requirement for the incremental capacity
commissioning in the 12th Plan will be met through captive mines. These
developments will be a key long term positive, as it lends increased certainty to
an already robust business model of NTPC.
FSA signed for additional 16m tons further lends comfort on existing capacity
NTPC has recently signed Fuel Supply Agreement (FSA) for Farakka (1.6GW),
Kahalgaon (1.8GW) and Ramagundum project (500MW), totalling 16m tons with
Coal India, which were under negotiation earlier. NTPC was thus not "assured" of
committed quantity leading to imported coal usage of as high as ~30%.
Signing of FSA will boost availability factor and improve assurances on recovery
of fixed charge. This is because lower cost of generation (lower imported coal
blending) will enable preference in merit order dispatch, leading to higher
generation/PLFs. We calculate that NTPC is assured of ~70% of its requirement
at 90% ACQ levels for Farakka and Kahalgaon and 45-50% for Ramagundem.
Well placed on fuel sourcing; captive production ramp-up a key; Buy
NTPC's incremental fuel requirement over FY12-17E stands at ~105m tons+,
towards planned capacity addition of ~25GW in Twelfth plan period. Of this, there
exists possibility of 10-12GW on captive coal blocks. Several of these projects
have been awarded under bulk tendering of 800MW sets (7.2GW) and thus project
commissioning provides sufficient time to synchronize the mine development.
Production ramp up at captive mines is crucial and slippages will impact profitability.
2QFY12 PAF of 83.4% (lower than 85%) was impacted due to several one-off
factors like heavy rainfall at NCL/ECL mines, Strike at SECL given Telangana
issue, etc. Further, availability could not be declared even with "physical" availability
of coal at the some stations due to wetness and higher moisture in coal. Given
the one-off nature of these events, management remains confident of achieving
92%+ PAF for FY12 (same as FY11) given higher PAF of 98-99% in 3Q/4Q.
We expect NTPC to deliver net profit CAGR of 14% over FY11-13E. Stock trades
at PER of 14.2x and P/BV of 1.8x on FY13E basis.
Buy
with TP of INR229/sh.
RoCE (%)
13.3 12.9 11.7
* Reported Pre Exceptional Earnings;
factoring in tax gross up by MAT
Shareholding pattern % (Sep-11)
GoI,
84.5
Others,
3.7
Foreign,
3.6
Domestic
Inst, 8.2
Stock performance (1 year)
NTPC
230
205
180
155
130
Sensex - Rebased
Nalin Bhatt
(NalinBhatt@MotilalOswal.com); +91 22 39825429
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 39825410 /
Vishal Periwal
(Vishal.Periwal@MotilalOswal.com) +91 22 39825417

NTPC
Captive Mines development
progress encouraging
Geological Reports available
for all coal blocks
Mining plan approved for 53m
tons of production pa.
All notifications for mining
area
land
acquisition
completed
for
Pakri-
Barwadih, Chatti-Bariatu,
Keandari, Dulanga and
Talaipalli coal blocks.
Environment
clearance
accorded
for
Pakri-
Barwadih, Chatti-Bariatu and
Kerandari coal blocks.
Stage II forest clearance
accorded for Pakri-Barwadih
coal mining.
"Early" indications suggest restoration of de-allocated coal blocks soon,
big positive in our view
NTPC is expected to get restoration of its de-allocated coal blocks, based on "early"
indication/comments from Mr. Shriprakash Jaiswal (Union Minister of Coal) and Mr.
Arup Roy Choudhury (NTPC CMD). The process is expected to be completed shortly.
While the company had been re-iterating restoration possibilities in the past, the
comments from Mr. Jaiswal is encouraging.
In June 2011, Ministry of Coal (MoC) had de-allocated 14 Coal Blocks and 1 Lignite
block, based on a review of project progress. These included 5 blocks of NTPC, Viz.
Chatti Bariatu, Chatti Bariatu (South), Kerandari, Brahmani and Chichiro Patsimal
with combined geological reserves of 3b tons. Post de-allocation, NTPC was left with
3 coal blocks with geological reserves of ~3b tons.
These 8 coal blocks were to cater to ~12GW (including bulk tendering projects of
800MW unit) of capacity with NTPC's proportionate share in reserves of 4.8b (total
reserves 6b tons) and proportionate production capacity for NTPC at 73m tons pa
(total 86m tons). Restoration of coal blocks is a big positive, in our view, as it lends
further surety to an already robust business model of NTPC, with higher visibility on
future capacity.
The development progress has been encouraging, with Geological Reports available
for all coal blocks. Mining plan has been approved for 53m tons of production pa. All
notifications for mining area land acquisition have been completed for Pakri-Barwadih,
Chatti-Bariatu, Keandari, Dulanga and Talaipalli coal blocks. Rehabilitation action plan
has been approved for Pakri-Barwadih, Chatti-Bariatu and Kerandari coal blocks and
disbursement of land compensation has been commenced. Environment clearance
has been accorded for Pakri-Barwadih, Chatti-Bariatu and Kerandari coal blocks.
Stage II forest clearance has been accorded for Pakri-Barwadih coal mining.
NTPC has already appointed the Mine Developer cum Operator (MDO) for Pakri-
Barwadih (Thiess, Australia) and Talaipalli mines (NTPC SECL Global Ventures P.
Ltd on nomination basis); and mining is expected to commence in FY13/14E. Price
bids for appointment of MDO have been under evaluation for Chatti Bariatu mines.
Captive coal blocks of NTPC
Mine
Pakri Barwadih
Chatti-Bariatu
Kerandari
Dulanga
Talaipalli
Chatti-Bariatu (South) #
Brahmini and Chichro Patsimal #
Coal Reserves
(m ton)
1,436
194
285
245
1,267
357
2,256
Est Prod
(mtpa)
15
7
6
7
18
13
20
Initially a bucket mines, dedicated for
Barh (2GW) project
Barh expansion (1.3GW)
Tanda Expn (1.3GW)
Darlipalli (3.2GW)
Lara (4GW)
-
-
Source: Company
Projects linked
Total
6,040
86
Shade: Blocks De-allocated, #In 50:50 JV with Coal India
4 November 2011
2

NTPC
News article in Business Standard on 26th October 2011
"NTPC has assured us of
quicker development of
blocks now. Also, there have
been many requests from the
power minister. We are likely
to give the blocks back as
soon as the report of the
review committee is
submitted in four-five days,"
coal minister Sriprakash
Jaiswal told Business
Standard.
B. Mr. Arup Roy Choudhury (NTPC CMD) making statement on coal blocks restoration in CNBC
Q: We also hear that the Coal Ministry is almost set to restore the five captive coal
block allotments to NTPC in a week but earlier there was a talk of cancellation on
ground of delays in development. Have you heard anything on that front?
A: Yes you are right. It is going to get restored any day. We have been given connection for
another 8,000 megawatt capacity. We received a letter saying that we will be given captive
mines for that. So that improves our position. We will be able to do a majority of our own
coal needs through our domestic mining in the next three to four years.
4 November 2011
3

NTPC
Incremental possible mine
allocations (MW)
Rae Bareilly, UP
Kudgi, Karnataka
Gajmara, Orissa
Barethi, MP
Total
500
1,600
1,600
4,000
7,700
Additional in-principal approval granted to captive coal blocks for ~8GW
projects
In addition to the above coal blocks, Coal ministry has given in-principle approval for
allotment of five coal blocks through government dispensation route for ~8GW of
capacity. These includes four power projects, viz. 500 MW in Rai Bareilly, UP; 1.6GW
at Kudgi in Karnataka; 1.6GW at Gajmara in Orissa and 4GW at Barethi in Madhya
Pradesh.
This further re-enforces the superior positioning of NTPC in the sector, already starved
of domestic fuel and lowering dependence on Coal India for linkages. We understand
that out of 8GW, 4GW is expected to commission in 12th plan itself and thus securing
of blocks is positive to NTPC fuel supply.
16m tons of additional committed quantity under FSAs further lends comfort
on existing capacity
NTPC has recently signed Fuel Supply Agreement (FSA) for Farakka (1.6GW),
Kahalgaon (1.8GW) and Ramagundum project (500MW), totalling 16m tons with Coal
India. This comprises of 15m tons for Farakka & Kahalgaon project and 1m tons
towards Ramagundm project. FSAs for these projects were under negotiation and
thus, NTPC was not "assured" of committed quantity in the past and was using imported
coal blending of as high as ~30% for its Farakka and Kahalgaon projects.
This will boost availability factor and improve assurances on recovery of fixed charge.
This is because lower cost of generation (lower imported coal blending) will enable
preference in merit order dispatch, leading to higher generation/PLFs. We calculate
that NTPC is assured of ~70% of its requirement at 90% ACQ levels for Farakka and
Kahalgaon project and 45-50% for Ramagundum project.
PLF of Farakka (left) and Kahalgaon (right) project had been impacted (%)
Source: CEA
Increasingly well placed on fuel sourcing; Captive mine production ramp-
up a key
NTPC's incremental fuel requirement over FY12-17E stands at 105m tons+, towards
planned capacity addition of ~25GW in Twelfth plan period. Of this, we believe that
there exists possibility of 10-12GW being catered to by captive coal blocks. Several of
these projects have been awarded under bulk tendering of 800MW sets (7.2GW) and
thus project commissioning provides sufficient time to synchronize the mine
development.
4 November 2011
4

NTPC
NTPC could thus source 40-45% of its incremental coal demand in the Twelfth Plan
from captive coal blocks. The balance can be met through imports (blending at say
15-20% equivalent) and 30-35%, (30-40m tons) from coal linkages. Thus, a very large
part of the fuel requirement for the incremental capacity being met through captive
mines is a key positive, leading to an integrated business model.
Ramp up of captive coal blocks is thus critical; and any slip-up will impact project
profitability. The initial experience of developing coal blocks, proximity to power plants,
logistics advantages, etc are some factors in NTPC's favour, in our view.
NTPC Coal block: proximity advantage
Source: MoC
12th plan: high proportion of projects linked to captive mine provides comfort
Particulars
Modeled capacity in 12th plan
Based on captive mines
% of total
Projects linked to captive mines
- Barh 1
- Barh 2
- Tanda II
- Lara*
- Gajmara*
- Darlipalli*
- Kudgi*
* 800MW units already awarded under bulk tendering
Cap (MW)
25,481
11,820
46
11,820
1,980
1,320
1,320
1,600
1,600
1,600
2,400
Source: CEA/Company/MOSL
Eastern region PLFs impacted, alternate logistics channel to address coal
availability
Over last several months, NTPC PLF in Eastern region has been impacted. Lower PLF is
on account of logistic constraints of fuel supply at Kahalgaon and Farakka plants. The
attempt is to address the same through using Inland Waterways and NTPC has awarded
the contract to Jindal-IJF for setting up the transport system including facilities for loading,
unloading, barges, etc. This will aid large scale coal transportation.
4 November 2011
5

NTPC
NTPC PLF: Northern region plant impacted in Eastern Region
Northern Region
105
95
85
75
65
55
Western Region
Southern Region
Eastern Region
Source: CEA
2QFY12 PAF below 85% led by one-off factors, management remains
confident to achieve PAF of 92% in FY12
For 2QFY12, NTPC reported Plant Availability Factor (PAF) of 83.44%, lower than
normative PAF of 85%. However, the normative availability is defined on a full year
basis and thus, higher availability in 1Q and 2HFY12 would enable full recovery of
fixed charges, incentive for NTPC. We note that in the past too, NTPC has depicted
lower PAF in 2Q, v/s other quarters, though never below 85% (see 1st chart below).
In our interactions with the management, we understand that the lower PAF for 2QFY12
was impacted due to several one-off factors like 1) NCL/ECL coal mines received
highest rainfall, vs past 10-12 years, impacting production/evacuation, 2) Strike at
SECL given Telangana issue impacting production, availability for its Southern region
capacity (4.1GW) and 3) availability could not be declared even with "physical"
availability of coal at the some stations due to wetness, higher moisture in coal.
Given one-off nature of events, NTPC remains confident of achieving 92%+ PAF for
FY12 (same as FY11), given higher PAF of 98%+ in 3Q/4Q (aided by imported coal).
Trend in PAF (left) and PLF (right) for NTPC in 2Q, vs full year
PAF (%) 2Q
92
90
92
91
92
PAF (%) FY
92
89
PLF (%) 2Q
92
91
PLF (%) FY
91
88
83
85
85
85
86
86
83
83
83
82
83
78
FY07
FY08
FY09
FY10
FY11
FY12E#
FY07
FY08
FY09
FY10
FY11
FY12E*
# based on management guidance; * PLF for YTD FY12
Source: CEA/Company
Valuations and view
We expect NTPC to deliver net profit CAGR of 14% over FY11-13E. We expect
NTPC to deliver net profit of INR88b in FY12E (up 11% YoY) and INR103b in
FY13E (up 17% YoY), translating into an EPS of INR10.7/sh and INR12.5/sh.
Stock trades at PER of 16.7x and 14.2x and P/BV of 2x and 1.8x on FY12E and
FY13E basis, respectively.
Buy
with TP of INR229/sh (upside of 29%).
4 November 2011
6

NTPC
FSA Details
MW
A. Supply of ACQ quantity for the stations commissioned prior to
31.03.2009 except Farakka , Kahalgaon & Ramagundam-lll
Singrauli
Rihand
Unchahar
Tanda
Dadri
Korba
Vindhyachal
Simhadri
Talcher Kaniha
Talcher Th
Badarpur
Sipat-I I
Sub Total
B. Long term Linkage for Farakka & Kahalgaon
Farakka
Kahalgaon-I
Kahalgaon-ll
Kahalgaon-llI
C. Long term Linkage for Ramagundam-lll
Ramagundam-lll
D. Supply of coal for units commissioned during 2009-10 and
2010-11 as per LOA/Long term Linkage quantity
Dadri-ll
Sipat-I
Farakka-lll
Simhadri-ll
KORBA-III
Sub Total
E.Supply of coal for units to be commissioned during 2011-12
as per LOA quantity and pro-rata basis based on unit
commissioning for following projects
Sipat-I
Simhadri-ll
Sub Total
2,000
2,000
1,050
440
840
2,100
3,260
1,000
3,000
460
705
1,000
17,855
1,600
840
1,000
500
500
11.0
10.5
5.7
2.7
4.4
12.2
17.2
5.2
17.3
2.5
4.2
5.8
98.7
ACQ (m tons)
15.0
nil
1.0
980
660
500
500
500
3,140
4.0
3.1
2.2
2.3
2.3
13.9
1,320
500
3.1
1.3
1,820
4.4
Source: CEA/MoP/MoC/Company/MOSL
4 November 2011
7

NTPC
Financials and Valuation
Income Statement
Y/E March
Net Sales
Change (%)
Other operating income
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Interest
Other Income - Rec.
Profit before Tax
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
EO Exp/(Inc)
Adjusted PAT
Change (%)
Margin (%)
2008
370,910
13.7
255,453
68.9
115,457
31.1
21,385
94,072
17,981
26,458
102,549
28,401
0
27.7
74,148
-1,540
75,688
4.7
20.4
2009
419,238
13.0
314,176
74.9
105,062
25.1
23,645
81,417
20,229
31,723
92,911
11,582
0
12.5
81,330
0
80,720
6.6
19.3
2010
463,226
10.5
0
339,122
73.2
124,104
26.8
26,501
97,603
18,089
29,341
108,855
21,573
0
19.8
87,282
2,742
84,540
4.7
18.3
2011
548,740
18.5
0
422,892
77.1
125,848
22.9
24,857
100,992
21,491
40,995
120,496
29,470
1
24.5
91,025
11,445
79,580
-5.9
14.5
2012E
675,040
23.0
11,136
526,106
77.9
160,070
23.7
27,829
132,241
19,742
25,919
138,418
35,746
2
25.8
102,671
14,709
87,962
10.5
13.0
(INR Million)
2013E
770,585
14.2
5,000
599,971
77.9
175,614
22.8
39,231
136,382
31,897
28,928
133,413
30,195
2
22.6
103,216
0
103,216
17.3
13.4
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
2008
82,455
443,931
526,386
2555
285,640
814,581
533,680
272,743
260,937
224,783
152,672
255,488
26,757
29,827
149,332
49,572
79,299
55,483
23,816
176,189
814,581
2009
82,455
491,246
573,701
-3111
365,038
935,628
623,530
294,153
329,377
264,049
139,835
309,253
32,434
35,842
162,716
78,261
106,886
74,391
32,495
202,367
935,628
2010
82,455
541,719
624,174
-1560
394,078
1,016,692
668,501
320,888
347,613
321,043
148,071
307,546
33,477
66,514
144,595
62,960
107,581
76,876
30,705
199,965
1,016,692
2011
82,455
596,468
678,923
3028
439,803
1,121,754
727,552
335,192
392,360
382,706
123,448
353,968
36,391
79,243
161,853
76,481
130,729
103,205
27,524
223,239
1,121,753
2012E
82,455
653,801
736,255
6030
587,216
1,329,501
1,004,078
363,021
641,057
350,639
122,031
403,643
46,236
83,224
182,084
92,098
187,869
158,409
29,460
215,774
1,329,501
(INR Million)
2013E
82,455
711,438
793,893
6030
705,991
1,505,914
1,278,778
402,252
876,527
302,895
118,862
378,961
52,780
73,892
154,271
98,018
171,331
140,901
30,429
207,631
1,505,914
4 November 2011
8

NTPC
Financials and Valuation
Ratios
Y/E March
Basic (INR)
EPS (Adjusted)
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
14.95
15.5
14.8
12.9
14.1
13.0
12.2
13.3
12.4
12.9
13.5
11.7
2008
9.0
11.8
63.8
3.5
45.5
2009
9.8
12.7
69.6
3.6
42.7
2010
10.3
13.5
75.7
3.8
41.9
2011
9.7
12.7
82.3
4.2
44.2
2012E
10.7
14.0
89.3
4.8
44.2
2013E
12.5
17.3
96.3
4.8
44.2
18.4
14.1
2.2
3.2
13.2
16.7
12.7
2.0
2.8
11.3
14.2
10.3
1.8
2.6
11.2
0.7
0.5
29
26
26
0.7
0.4
31
28
35
0.7
0.5
52
26
44
0.8
0.5
53
24
41
0.7
0.5
45
25
18
0.6
0.5
35
25
25
3.2
5.2
0.5
2.9
4.0
0.6
2.9
5.4
0.6
2.7
4.7
0.6
2.1
6.7
0.8
2.2
4.3
0.9
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Interest
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
CF fr. Oper. incl EO Exp.
(inc)/dec in FA
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Debt
Dividend Paid
Interest
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
4 November 2011
2008
102,549
17,981
21,385
-28,401
-8,439
105,075
105,075
-82,798
-8,271
-91,069
27,062
-23,954
-17,981
17,053
2,180
16,186
133,146
149,332
2009
92,911
20,229
23,645
-11,582
-12,794
112,409
112,409
-129,116
-12,837
-141,953
73,772
-24,666
-20,229
14,051
42,928
13,384
149,332
162,716
2010
108,855
18,089
26,501
-21,573
-16,330
115,542
115,542
-101,965
8,236
-93,729
32,292
-26,056
-18,089
-28,081
-39,934
-18,121
162,716
144,595
2011
120,496
21,491
24,857
-29,470
-5,405
131,969
131,969
-120,714
-24,623
-145,336
53,912
-29,438
-21,491
27,642
30,625
17,258
144,595
161,853
2012E
138,418
19,742
27,829
-35,746
27,697
177,940
177,940
-244,459
-1,418
-245,877
140,890
-33,205
-19,742
225
88,168
20,232
161,853
182,084
(INR Million)
2013E
133,413
31,897
39,231
-30,195
-19,670
154,677
154,677
-226,956
-3,169
-230,125
118,775
-33,381
-31,897
-5,862
47,635
-27,814
182,084
154,271
9

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