>National Thermal Power Corporation Limited (CRISIL)

■ Largest power generation player
National Thermal Power Corporation (NTPC) is India’s largest power generator, with capacity and generation shares of 19% and 29%, respectively, as on FY09. Currently, the company is executing power capacity addition of ~18,000 MW which is planned to be completed by FY12 taking the total capacity to more than ~48,000 MW. We expect some slippages in the scheduled addition of the power plants. The company is expected to add 10,990 MW of capacity during FY09-12.

■ Power deficit provides prospects
India is a power-deficit country, with peak power deficit of more than 10% in FY09. The base demand was 775 Bn units while supply was only 689 Bn. This gap in demand and supply throws high potential. The demand is expected to grow at a CAGR of 7.5% while supply is projected to grow at a CAGR of 8.7%. Also NTPC, being the central utility player, is expected to get the lion’s share of the government’s share of power addition plans.

■ CERC tariff norms provides stability of earnings
The Central Electricity Regulatory Commission new tariff norms (2009-14) mandates 15.5% return (Additional incentive of 0.5% on timely completion), with further income from Unscheduled Interchange (UI), incentive for higher availability and better operating parameters. Though regulated returns cap NTPC’s upside potential, they provide stable cash flows and earnings. However, earnings do not provide inflationary hedge as they are based on regulated equity and therefore, mostly fixed.

■ Sales to post a CAGR of 13%, PAT to grow 13.3% over next three years
Over the next three years, sales are expected to increase at a CAGR of 13% to Rs 630.7 Bn, on back of increase in power capacity; the company is expected to add 10,990 MW of power capacity over the next 3 years. During the same period PAT is expected to grow at a CAGR of 13.3% to over Rs 117.7 Bn.

■ ROE to increase on higher returns from of power business
NTPC is currently executing ~18,000 MW of capacity additions, involving capex of around Rs 900 Bn. The new norms is expected to lead to improvement in profitability of the power business. The return from power business is expected to increase by 400bps to 26%. The improvement in the profitability is expected to improve ROE to 16.1% in FY10.

To see full report: NTPC