NTPC scales down acquisition target

New Delhi: The acquisition plans of India’s largest power generator NTPC Ltd may not help stranded power plants and financial institutions much, with the state-owned company scaling down its target and demanding that promoters and banks take haircuts.

We expect to acquire around 3,500 megawatts (MW) by March 2015, provided a substantial haircut is taken by the promoters and the banks. The due diligence is on for around seven or eight assets, said Arup Roy Choudhury, chairman and managing director of NTPC.

The utility was earlier planning to buy 8,000-9,000MW capacity. This comes in the backdrop of the Supreme Court’s September order that cancelled more than 200 coal mines allocated between 1993 and 2010. The company has created a committee under the board’s supervision to evaluate these opportunities.

Slowing growth, high borrowing costs and delays in securing regulatory approvals had hit many infrastructure projects in India, including power plants, hurting the ability of their promoters to repay creditors and vendors. This had made them line up 34 proposals totalling 55,000MW in response to NTPC’s expression of interest (EoI) for acquisition opportunities. NTPC has earmarked Rs.10,000 crore for inorganic growth.

As many as 40 listed Indian banks had gross bad loans of Rs.2.52 trillion on 30 June, up 21% from Rs.2.08 trillion a year ago. Banks’ exposure to the capital-intensive power sector is estimated at Rs.3 trillion, more than the total amount of gross bad loans in the banking system.

The promoter of a power generation firm that had participated in NTPC’s EoI, requesting anonymity, said he remained hopeful of being considered by the state-owned utility given its strong financials. NTPC had cash reserves of Rs.16,867.7 crore as on 31 March.

NTPC had also been advised by its audit committee to scale back its planned capacity addition targets due to muted demand and to revisit its inorganic growth plans. The utility’s plant load factor (PLF), a measure of average capacity utilization, was 81.5% in 2013-14 against 83.08% in 2012-13 for coal-fuelled projects.

NTPC was evaluating taking over at least six projects including Larsen and Toubro Ltd’s Rajpura project in Punjab and all the thermal power projects of the debt-laden Jaypee Group, as it seeks to consolidate its presence as India’s largest power generation company, leveraging the cash on its books and the bargains on offer, Mint reported on 13 February. The other projects NTPC was considering include the Shapoorji Pallonji Group’s imported coal-based power plant in Gujarat and state government-owned projects in Bihar and Uttar Pradesh.

Of India’s current power generation capacity of 254,049.49MW, NTPC has a 17.28% share, with an installed capacity of 43,128MW. The utility plans to add 14,038MW during the 12th Plan (2012-17) and has budgeted an ambitious capital expenditure target of Rs.1.5 trillion. It has a target of becoming a 128,000MW power producer by 2032. Of this, 56%, or 71,680MW, will be coal-based.

This also comes at a time when NTPC’s concerns over the revised electricity tariff norms have turned out to be true with the utility posting a 17% decline in its fiscal second quarter profit. It posted a net profit of Rs.2,071.63 crore for the three months ended 30 September, compared with Rs.2,492.90 crore a year earlier. Also, revenue increased by only 1% to Rs.17,267.32 crore compared with a year ago.

“The company’s profitability has structurally declined for FY15-19 period vs. earlier post new CERC regulation (effective from 1st April 2014) and this continues to hit numbers for them. It has earned only ~Rs.400mn PLF based incentives in Q2FY15 (vs. average annual incentive of Rs.5-6bn for the period FY10-14) which has impacted the financial performance adversely. Overall, the results were lower than expectations,” UBS Global Equity Research said in a 3 November report.