With demand soaring, NTPC on strong footing

“Further, the steep pre-money equity valuation of Rs34000 crore which Tata Power Co.’s renewable platform was able to garner sets a new benchmark for the industry. A potential deal at high valuations cannot be ruled out for NTPC’s renewable assets as well,” said Rohit Natarajan, analyst at Antique Stock Broking Ltd.

In general, NTPC is a beneficiary of strong power demand in the country. Also, the company’s captive mines and coal linkages place it in a relatively better position as the tariffs are much lower when compared to the Indian Energy Exchange (IEX) prices. Amid increased demand and coal shortage, the average market clearing price (MCP) in the day-ahead electricity market on the IEX, touched ₹8.9 per unit in April (average till 18 April). This is a further increase from the average MCP seen in March. In FY22, prices have averaged at Rs4.4 per unit.

On the other hand, NTPC’s average tariff in the nine-month ended FY22 (9MFY22), stood at 3.91 per unit. “We believe since the exchange is not proving to be a reliable means for catering to discoms’ (distributor companies) power requirements, due to the huge gap in purchase and sell bids leading to extraordinary prices, discoms will be drawing more (purchase power agreement) PPA-based thermal power going forward, benefitting NTPC,” said analysts at ICICI Securities in a report on 12 April.

Moving ahead, NTPC is transitioning into an integrated power generating company with an increasing focus on clean and green energy. In FY22, the non-fossil fuel share in total installed capacity rose by 30 basis points to 8.1%, according to ICICI Securities. One basis point is 0.01%. NTPC aims to enhance its renewable portfolio and install 60GW (gigawatt) of renewable energy capacity by 2032.

But for now, thermal power is seeing increased traction as power generated from renewable sources is not available round the clock as they have natural limitations. As such, NTPC would stand to benefit as coal-based plants form the largest portion of its total installed capacity. In FY22, the plant load factor of coal-based plants reached 70.7%, and is expected to increase further as necessity rises.

“With uptick in demand, NTPC has enough capacity to respond to the same,” said Abhineet Anand, analyst at Emkay Global Financial Services Ltd.

However, there are offsetting factors. “Key downside risk in the medium term includes a severe coal shortage which would result in under-utilization of NTPC’s capacities. Though the company has captive mines, the potential ramp-up in coal supplies from Coal India Ltd needs to be closely monitored,” added Anand.