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Why NTPC Has Grown To Strength As Power Cos Struggle

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Seven years ago, when the country’s largest power producer, NTPC, lost out the bid for Tilaya UMPP to Reliance Infrastructure owned R-Power, stock analysts as well as sector’s experts had castigated the management for not being aggressive enough. In fact, the public sector enterprise had already lost two previous bids for Sasan and Krishnapattam UMPPs (ultra mega power projects) - also awarded to R Power- and had not participated in the bidding for the Mundra UMPP which was awarded to Tata Power.
 
But today, the Tilaya UMPP is yet to come on ground. Of the other three UMPPs, only Tata Power’s Mundra UMPP has begun commercial production of power and the company has incurred huge losses on the project. The NTPC management often quotes this example as the reason behind a good balance sheet of their company.
 
Today, the company has received 30 expressions of interest from private sector companies to buy out their distressed projects. The euphoria over the power sector is over and only players with long-term strategies are in a position to continue in the business. While big  business groups like R-Power and Tata Power are struggling to keep afloat, smaller players like Lanco Infra, GVK Infra, and JP Power ventures have damnable debt to equity ratio on their balance sheets in the range of 4 to 23. Sooner or later they will have to sell their power assets or the debt will impact their other businesses also.
 
Experts say that power is a business of long gestation period and only companies with a horizon of 10-15 years can survive. Today, NTPC has a huge cash pile of Rs 17,000 crore and a debt to equity ratio of 0.9 only.
 
NTPC has an installed capacity of 42,454 MW comprising of 22 Coal based and 8 Gas based projects. The company has massive ongoing capacity addition plans with around 20,000MW projects under construction. The company might add as much as 10,000 MW in the coming years by acquiring distressed thermal power assets according to market experts.
 
NTPC’s strong growth is a result of focusing on the fundamentals of the power business. The company never went for Chinese power equipment, which were cheaper as compared to equipment provided by BHEL. But the quality of expensive equipment has helped NTPC maintain highest average Plant Load Factor, or capacity utilisation, in the country. NTPC’s coal plant PLF improved about 1.8 per cent in FY14. The PLFs of all thermal power generators fell by an average of 4 per cent in the same period.
 
This reflects in the company’s financials as the company’s EBITDA from generation business has grown to Rs 17,348.24 crore from Rs 15676.21 crore registering a growth of 10.67 per cent year-on- year for FY14.


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