Power-packed punch from NTPC

According to Arun Kesariwal, director, KRIS, the public issue of NTPC offers a good opportunity for retail investors. 8220;We are bullish on the stock at the offer price,8221; says Abhay Aima, country head, equities 038; private banking, with HDFC Bank. Analysts also expect some gains on listing for the offer, which they feel could have a final bid cut-off price of around Rs 55 a share.

The issue proceeds will be used to fund major expansion programmes. Out of the 9,370 MW target for the 10th Plan, the company has commissioned 2,000 MW and construction activities are in different stages for 6,370 MW. The company has already commenced work on 2,120 MW capacity out of the 11th Plan target.

Net sales for the quarter to June 2004 increased by 8.3 per cent to Rs 5,186.7 crore on the back of 11.6 per cent increase in higher sales of electrical units. The company sold 36.2 billion units of electricity. Higher volume sales and comparatively lower growth of net sales shows declining sales realisation of electricity. However, total income jumped by 15.5 per cent to Rs 5,729.6 crore due to 217 per cent increase in other income to Rs 538 crore. Other income consisted mainly tax free interest on bonds that were issued to the company from SEB as one time settlement. Total expenditure grew by 15.3 per cent to Rs 4,618 crore mainly on account of 16 per cent rise in fuel expenses. Net profit grew by 16.5 per cent to Rs 1,054 crore.

NTPC is the market leader that command 19 per cent of India8217;s total installed capacity and accounted for 26.7 per cent of the country8217;s total electricity output in 2003-04. In fact, the share of installed capacity of NTPC in total installed capacity in India has come down in the last five years from 19.64 per cent to 19.12 per cent. The total installed capacity in India grew by compounded annual growth rate CAGR of 3.36 per cent to 112,058 MW during last five years whereas NTPC8217;s installed capacity grew by CAGR of 2.66 per cent to 21,435 MW.

However, the company has made up the slower growth of installation by higher operational efficiency that came from efficient utilisation of fuel and maintenance. Consequently, the electricity generation increased by a CAGR of 5.8 per cent during last five years. Also the average availability of their coal-based plants has ranged between 88.8 per cent and 90.06 per cent during the past five years. The company also achieved high power load factor of 84.4 per cent against a national average of 72.7 per cent. Productivity per employee has risen from 5.58 MU per employee to 7.11 MU per employee during the past five years. The company intends to enter into coal mining and coal washing in order to ensure better control, greater reliability and lower cost of coal supplies. It will help to set benchmarks in productivity and price.

In order to improve productivity of gas based plants, NTPC also secured the supply of 132 trillion BTU of natural gas per year for a period of 17 years. This will help efficient operation of its capacity expansion at Kawas and Gandhar by 1300 MW. The company is diversifying in order to increase revenue streams, leverage their strength, expertise, and hedge business risks in the long run. It has also entered into power trading.

On the flip side, the company may face increased competition from the new and existing players because of the new Electricity Act promulgated in June 2003. The Act mandates non-discriminatory open access to all players in transmission, distribution and consumer network also. The provision regarding tariff determination through competitive bidding will encourage competition and may attract new investments.