6 December 2019
Update
| Sector:
Utilities
NTPC
Buy
BSE SENSEX
40,780
S&P CNX
12,018
CMP: INR114
TP: INR164(+44%)
SCED implementation leading to savings
Data indicates annual benefit of ~INR4b for NTPC
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
As On
Promoter
DII
FII
Others
2019 2020E
906.4
199.1
114.6
11.6
30.3
111.2
10.7
6.7
9.9
1.0
304.0
130.0
13.1
13.4
118.6
11.4
6.8
8.8
1.0
2021E
363.9
150.8
15.2
16.0
127.6
12.4
7.6
7.6
0.9
993.6 1,100.3
NTPC IN
9,895
1128.5 / 15.8
146 / 107
-7/-18/-17
1734
45.5
In Jan’19, the CERC (regulator) directed POSOCO to implement an optimization
scheme for the dispatch of power. The scheme – termed as Security Constrained
Economic Dispatch (SCED) – planned to optimize sourcing from thermal inter-state
generating stations (whose full capacity is tied up and regulated with CERC).
Under SCED, power would be dispatched in the order of the lowest cost (variable
cost) of generation (while taking into account factors such as technical minimum,
ramp rates and transmission constraints). With better utilization of lower cost plants,
generation costs within the system were expected to reduce.
The results of the SCED scheme have been encouraging. Total savings of ~INR3.1b
were achieved for 3MFY20. According to CERC, 50% of these savings (post
compensation for part load ops) would be shared with generators. Our analysis
suggests that NTPC’s share stands at INR1b for 3MFY20, implying an annual INR4b
benefit for the company.
SCED – Implementation now beyond initial phase
Shareholding pattern (%)
Sep-19 Jun-19 Sep-18
54.5
30.8
12.1
2.6
56.4
28.5
11.6
3.5
61.8
23.5
11.6
3.1
POSOCO implemented the SCED mechanism on a pilot basis from 1
st
Apr’19. Under
SCED, a separate account (called National Pool) was created for payments to/from
generators for increment/decrement in their schedule. On implementation, the
scheme led to savings of INR3.1b in the cost of power purchase (~1.5% reduction in
generation cost*) over Apr-Jun’19. This was driven by an increase in generation
from pit head (lower variable cost) plants in the northern and eastern regions of
India; on the other hand, higher variable cost generation from the southern region
has decreased (see
exhibit 1).
CERC, in its order, has taken note of this and (1)
extended its implementation up to end-FY20, and (2) set out a methodology for
sharing of benefits accumulated in the pool.
Benefits to be equally shared between DISCOMs/generators
The CERC has directed that benefits within the SCED pool should be shared equally
between the participating generators and DISCOMs (after compensation for part
load operations of generators). Further, the generators’ share of benefit (i.e. 50%
of net savings) would be divided in 60:40 ratio between SCED Up (generators
whose dispatch has increased through SCED) and SCED Down (generators whose
dispatch has decreased through SCED) for each 15min time block. The benefit for
each generator would be in proportion to their share of SCED schedule for the time
block (see
exhibit 2).
FII Includes depository receipts
Stock Performance (1-year)
NTPC
145
130
115
100
Sensex - Rebased
*Based on data from Apr-Jul’19
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.