Funds-flush NTPC eyeing 8,000 MW in stressed thermal assets

Written by Pallavi Ail | Mumbai | Updated: Aug 12 2014, 07:04am hrs
Arup Roy ChoudhuryArup Roy Choudhury
NTPC may acquire 7,000-8,000 MW of stressed thermal assets, according to chairman and managing director Arup Roy Choudhury. Choudhury indicated to analysts last week that the power producer had been offered around 55,000 MW of stranded thermal assets of which a subcommittee was evaluating 7,000 MW to 8,000 MW of assets. He said a mergers and acquisitions (M&A) consultant had been roped in to help with the assessment.

In a recent report, Kotak Institutional Equities wrote that assuming NTPC acquire as much as 10 GW of assets at replacement cost and 70% debt financing, the value accretion from the same could be as much as `9 per share. The replacement cost is estimated by analysts at somewhere close to `5 crore per megawatt, putting the value of the 8,000-odd MW of assets at around `40,000 crore.

Acquisitions have worked well for the company it managed to improve the plant load factor (PLF) of the Talcher plant in Odisha, acquired in June 1995, from 19% to 95%. The PLF of the Tanda plant in Uttar Pradesh was increased from 15% when acquired in January 2000 to 93%.

NTPC is not short of cash; the state-owned power generator had cash and bank balances of `13,860 crore, as on June 30, while its total debt was `68,483 crore. The company made a capital expenditure of `21,797 crore last year, more than the planned `20,200 crore.

With an installed capacity of 43,128 MW, including group companies, as on July 31 and an additional 22,414 MW of capacity under construction, NTPC is the countrys biggest power producer.

Even as it plans to add 14,228 MW by FY17, the electricity regulators new tariff order in February has hit the companys financials. Its net profit in the first quarter of the current fiscal was down 13% year-on-year. The new regulations will drive down the firms return on invested equity to 17% from 22-23%.

Although NTPC appealed CERCs incentive structure in the Delhi High Court, the regulator decided against any changes. The court will hear the case later this month.

Many of the other players in the power sector are plagued with problems of fuel and under-recovery of costs... NTPC takes the decision to proceed with a new project only once it is satisfied on the availability of land, water, fuel, offtake arrangements and environmental clearances, the company said in its investor presentation.

Whatever projects NTPC is evaluating, all of them are in the private sector. NTPC has many conditions before they zero in on a specific asset, said Bhargav Buddhadev, an analyst tracking power sector with Ambit Capital.