Ntpc - Sell Ntpc Dadri Plant Visit

Quick Take Utilities

• •

The plant is spread over 2,665 acres, making it one of the largest sites in India. The station has ~1,130 employees, who have been given accommodation in an integrated township adjacent to the plant. The Dadri plant is 50km away from Delhi, in the state of Uttar Pradesh. Road connectivity to the plant has improved of late, thanks in large part to NTPC’s efforts.

Figure 1: NTPC’s Dadri plant – land usage for current and proposed capacity 100% = 2,665 acres

Plant Area 980MW Stage II 13% Tow nship 15%

Approach road 1% Plant Area 840MW 34%

Ash Mount area 21% Railw ay siding 6%

Shareholding pattern (%) Promoters FIIs Domestic MFs/Insurance cos Others

-9.5

-29.1

-27.0

Stock movement Volume Shares (m)

40 35 30 25 20 15 10 5 0

89.5 4.1 2.5 3.8

Price (Rs)

300 250 200 150 100 50 0

Figure 2: Summary of operations Existing operations

Proposed expansion

Capacity (MW)

Coal Based 840MW (4x210)

Fuel Source

North Karanpura

Gas based 829MW (4x130.19 GT 2x154.51 ST) HBJ pipeline

Water Source Capex/ investment (Rs bn)

Mat Branch Canal

Mat Branch Canal

Mat Branch Canal

16.7

9.6

51.4

Beneficiaries

Delhi, UP

CoD

Unit I: 10/91 Unit 2: 12/92 Unit 3: 03/93 Unit 4: 03/94

Reservoir Stage II 8% Plant Area 829MW gas 2%

291/148 8245 33.5 2.2 10.5

CESC

Jul-08

As a part of the infrastructure for the Commonwealth Games, the station is adding coal-based capacity of 980MW (Stage II expansion) consisting of two units of 490MW each.

52Wk High/Low (Rs) Diluted o/s shares (m) Daily volume (US$ m) Dividend yield FY09ii (%) Free float (%)

1Y 2.0 5.6 26.6 46.6

Aug-08

•

The station has the largest switchyard in India, with power-handling capacity of 4,500MW.

NATP IN

3M -3.5 8.7 -23.4 -25.4

Apr-08

•

Bloomberg

32,344

1M -8.7 -8.9 -1.8 0.2

Feb-08

The coal-based station’s boiler can be fired using 100% furnace oil as well. The gas station has two modules, each consisting of four 130.2MW gas turbines, with a waste-heat recovery boiler and two 154.5MW steam turbines.

Market cap (US$ m)

NTPC Rel. to Sensex Reliance Infra Tata Power

Jan-08

•

Price performance (%)

12-mth Target price (Rs) 140 (-18%)

Nov-07

NTPC’s Dadri plant is the only one in India to house gas-based as well as coal-based generating units. The plant’s combined capacity is 1,669MW (840MW on coal and 829MW on gas).

Rs171

Oct-07

•

CMP

Aug-07

NTPC hosted a plant visit to the NTPC Dadri plant over the last weekend. We came back impressed by the operational efficiency of the existing plants and progress achieved on the proposed expansion. Here are the key takeaways from our visit.

28 Aug 2008

May-08

NTPC - SELL NTPC Dadri plant visit

UP, Uttaranchal, HP, Chhattisgarh, J&K, Rajasthan, Punjab, Delhi, Railways GT I: 02/92 GT 2: 03/92 GT 3: 06/92 GT 4: 10/92 ST 1: 11/93 ST 2: 02/94

GT: Gas turbine, ST: Steam turbine. Source: Company, IIFL Research

Source: IIFL Research

h a rsh .dole@iif lcap.com

980MW (2x490) North Karanpura

Delhi (900MW), UP (80MW)

Unit 5: 09/09 Unit 6: 01/10

NTPC - SELL

Dadri coal plant has the highest PLFs among all of NTPC’s units

Environment-friendly unit

•

•

The plant operates the country’s largest fly-ash disposal facility, with 53m m3 storage capacity.

•

Additionally, Ambuja and Grasim have announced plans to set up cement units near the plant, to use the fly-ash generated from the plant. As an incentive, NTPC will supply fly-ash to these plants free of cost for the first few months.

•

The thermal station currently produces 1.5m tonnes of fly-ash daily and some of this is sold in auctions by NTPC’s subsidiary NTPC Vidyut Vyapar Nigam. This generates an additional ~Rs350m income for NTPC annually.

•

The unsold ash has been used to create a flourishing nature park around the plant. The 550-acre ash mound acts as an ecosystem for both flora and fauna.

•

The coal unit receives coal from North Karanpura mines located in Jharkhand, almost 1,400km from Dadri. The coal (grade E, calorific value ~4,324-5,089 Kcal/kg) is fed through a rail link. NTPC has a dedicated railway siding that connects Dadri station and the plant. Gas for the plant is supplied by GAIL and is sourced through the HBJ pipeline. The plant consumes 4.7m tonnes of coal annually, and requires 4.0mmsmd gas. However, owing to the shortage of gas in India, actual supplies are only 2.5-2.6mmsmcd. Hence, although the coal plant’s PLF has been well over 90% since FY05, the gas station’s PLF has been much lower, at ~74% for the same period.

Figure 3: Coal-based units have recorded higher PLFs than gas-based units, thanks to firm fuel linkages Coal based units 100% 95%

Gas based units

Figure 4: Ash utilisation to develop a nature park in the power plant complex

96.1%

95.7% 92.8%

92.0%

90% 85% 80%

75.1%

75%

77.0% 74.2%

72.0%

70% 65% 60% FY05 Source: IIFL Research

FY06

FY07

FY08 Source: IIFL Research

h a rsh .dole@iif lcap.com

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NTPC - SELL

Brownfield expansion: on track for completion ahead of schedule

Other observations

•

Employee morale at Dadri plant running high

The brownfield expansion is on track to be completed before the standard 48 months usually needed to set up a new capacity.

•

Figure 5: Construction for Stage II expansion in full swing

Employees seem highly motivated. Key reasons could be: { Lower salary differential: Implementation of Sixth Pay Commission recommendations has reduced salary gap between private and public sector companies. { Access to amenities: Dadri campus provides all its employees access to amenities such as school, hospital, recreation/ entertainment centres and accommodations. Few private-sector power generation companies’ employees enjoy such facilities.

•

However, churn is evident at the corporate level, where such amenities are not provided and the operating structure is more bureaucratic.

Dadri is a benchmark for the best operation practices

•

Dadri has adopted the best practices for safety, environment protection and maintenance. This is evident from its ISO 9001-2000, ISO 14001 and OSAS 18001 certifications.

•

Additionally, to improve infrastructure around the plant, the company is laying a cement access road. 35% of material used would be fly-ash generated by the plant. The Rs250m-300m expenditure incurred would be capitalised by NTPC.

•

As a part of supply-chain management, the station also assists coals mines in their operations and maintenance.

Source: IIFL Research

•

BHEL is looking to complete the plant in record time.

Figure 6: BHEL is going for a record at Dadri

“ We are going to create” a record at Dadri

Dadri can add a further 500MW capacity through brownfield expansion • The existing campus has enough land available to allow an additional brownfield expansion by 500MW. Even for the Stage II expansion, only 200 acres additional land for the reservoir was required.

Source: IIFL Research

h a rsh .dole@iif lcap.com

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NTPC - SELL

Figure 7: Dadri station has 15 days’ coal inventory

Coal Inventory

Source: Google Maps, IIFL Research

Figure 8: NTPC Dadri Coa l inve nto ry

G as u nits

Die sel sto ra ge

Si te for exp a nsio n

4 ,5 00 MW switch yar d

Exi sti ng co al un its

Coo lin g to we rs

Source: Google Maps, IIFL Research

Harshavardhan Dole [email protected] (91 22) 6620 6660

h a rsh .dole@iif lcap.com

Avi Mehta [email protected] (91 22) 6620 6650

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NTPC - SELL

We have moved to a new recommendation structure. The key objective of the change is to provide an unequivocal view on each stock, either positive or negative.

BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon. SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon. In addition, we introduce Add and Reduce recommendations based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We assume the current hurdle rate at 10%, this being the average return on a debt instrument available for investment.

Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+. Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2008. © India Infoline Ltd 2008 This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of the clients of IIFL, a division of India Infoline, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. India Infoline or any persons connected with it do not accept any liability arising from the use of this document. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. India Infoline or any of its connected persons including its directors or subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this publication. India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons. India Infoline generally prohibits its analysts from having financial interest in the securities of any of the companies that the analysts cover.

h a rsh .dole@iif lcap.com

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