NTPC

Investors looking for a defensive play in the current market can buy the stock of National Thermal Power Corporation (NTPC), trading at Rs 150 (price earnings multiple of 13). The stock has managed the market storm relatively better than many others. Compared to a fall of 43 per cent in the broad market (Sensex), it is down by 18 per cent only since mid-August. The market’s attraction for NTPC stems from three main factors — the large demand-supply gap for power, the company’s efficient operating profile and its emerging integrated business model with entries into coal mining and power trading.

The power major’s plant load factor (PLF) of 87.5 per cent in the first half of this fiscal, though marginally lower than the same period last year, is still way ahead of the industry average. PLF, despite the addition of fresh capacity of 1,000 MW since the same period last year, was affected due to maintenance shutdowns at some of its stations and also fuel scarcity.

While the company has addressed the fuel problem by ordering imports of 8.6 million tonnes of coal, gas remains a cause for worry. The imbroglio over gas supply for its current and expanded capacity at its gas-based stations in Kawas and Gandhar is pulling down the overall PLF of NTPC. The company has now switched to naphtha following the fall in price of the liquid fuel, but that may be a temporary solution.

It is steadily moving ahead in its backward integration into coal mining, the fruits of which will begin to be visible over the next few years. Meanwhile, of the 22,430 MW planned to be added in the Eleventh Plan (2007-12), NTPC has commissioned 2,490 MW while 16,180 MW are in various stages of construction. The company may yet fall short of the target given that about 2,600 MW of gas-based capacity is included in it.

The capital expenditure programme continues to be on track with an estimated Rs 12,670 crore to be spent this fiscal followed by Rs 18,700 crore in 2009-10. The company recently raised Rs 1,000 crore through bonds from the market at average rates of about 11 per cent even in the current tight liquidity scenario. Weighted average cost of the company’s total borrowings, at 7.2 per cent, is still on the low side.

Profits have grown at 15 per cent compounded annually in the last five years. In the first half of this fiscal, the unadjusted profit has fallen by 10.67 per cent year-on-year but the adjusted profit shows a growth of 8.64 per cent. In the same period, revenues have grown by 13 per cent, mainly owing to capacity addition, leading to higher generation.