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NationalThermalPowerCorporationLimitedSwotAnalysis

September09,2016|Publication:MarketLineCompanyRepts

NationalThermalPowerCorporationLimited
SwotAnalysis
SWOTAnalysis
Overview
NationalThermalPowerCorporationLimited(NTPCor'thecompany')isengagedintheengineering,construction,and
operationofpowergeneratingplants.Inaddition,thecompanyisengagedinthefieldsofconsultancy,powertrading,
trainingofpowerprofessionals,ruralelectrification,ashutilization,andcoalmining.Thecompanyleveragesitsstrong
marketpositiontoenhanceitsrevenuegtrth,aswellasderiveeconomiesofscalefromitslargeoperations.However,
NTPCfacesthethreatofincreasingcompetitioninthepowergenerationsectorinIndiaduetoenhancedinvestmentsin
thesectorusheredbyreforms.
Strength
Overview
Strongmarketpositionandintegrationlevels
Diversifiedbusinessoperations
Strongresearchanddevelopmentcapabilities
Detailed
Strongmarketpositionandintegrationlevels
NTPCisthelargestpowercompanyinIndiaandisemergingasadiversifiedpowermajorwithpresenceintheentire
valuechainofthepowergenerationbusiness.NTPChasalsoventuredintoconsultancy,powertrading,ashutilization,
andcoalmining.InFY2015,NTPC'sshareinthetotalinstalledcapacityofIndiawasaround16%anditcontributed25%
ofthetotalpowergenerationofthecountryduringtheyear.NTPCwashonoredwithAscenderoftheDecadeAwardby
Plattsforachieving56thpositionin2015from90thpositionintheyear2006initsGloballistofTop250Energy
Companies.Thecompanywasalsoawardedthe"WorldClassIndianMaharatnaPSEoftheYear"atthe2ndIndian
PublicSectorEnterprises(IPSE)AwardsforExtdence2015.Furthermore,NTPCwasadjudgedastheBestCompanyto
workfor2015inthePublicSectorcategory.ItwasratedasthebestcompanytoworkinEnergy,OilandGasIndustry,in
astudycarriedoutbyGreatPlacetoWorkandTheEconomicTimes.ThecompanywasalsoawardedattheIndia'sTop
PSUsandAwards2015byDunandBradstreetinthePowerGenerationCategory.
Moreover,NTPCbecameaMaharatnacompanyinMay2010,oneoftheonlyfourcompaniestobeawardedthisstatus.
NTPCwasranked431stinthe'2015,ForbesGlobal2000'rankingoftheWorld'sbiggestcompanies.
Beingthelargestpowergeneratingcompanyinthecountry,NTPCisadominantplayerinthefieldofgeneration.The
companyleveragesitsstrongmarketpositiontoenhanceitsrevenuegtrth,aswellasderiveeconomiesofscalefromits
largeoperations.
Diversifiedbusinessoperations

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NTPCintendstodiversifyitsportfoliotoemergeasanintegratedpowermajor,withpresenceacrossentireenergyvalue
chainthroughbackwardandforwardintegrationintoareassuchascoalmining,liquefiednaturalgas(LNG),power
trading,anddistribution.Thecompanyenvisagesaninstalledcapacityof128gigawatts(GW)bytheyear2032witha
welldiversifiedfuelmixcomprising56%coal,16%gas,11%nuclearenergy,9%renewableenergyand8%hydro
powerbasedcapacity.Inthisregard,businessopportunitiesarebeingcontinuouslyexploredthroughenvironment
scanning,andnewbusinessplansarealsobeingadopted.
Inthehydropowerbusiness,NTPChasenteredintothehydropowerbusinesswiththe800MWKoldamhydroproject
inHimachalPradesh.TwomoreprojectssuchasTapovanVishnugad(HEPP)andLataTapovanalsohavebeentaken
upinUttarakhand.AlsothecompanyhassetupSingrauliCWDischarge(SmallHydro)project.Further,NTPC'swholly
ownedsubsidiary,NTPCHydroissettinguphydroprojectsofcapacitiesupto250MW.Intherenewableenergy
business,NTPCplanstohaveacapacityadditionofabout1,000MWthroughrenewableresources,suchassolarand
windenergyby2017.
Thecompanyhasenteredthenuclearpowerbusinessbyformingajointventurecompany,AnushaktiVidhyutNigam,
whichhasbeenformedwith51%stakeofNPCILand49%stakeofNTPCforthedevelopmentofnuclearpowerprojects
inIndia.Further,asamajorbackwardintegrationmovetocreatefuelsecurity,NTPChasventuredintocoalmining
businesswithanaimtomeetabout20%ofitscoalrequirementfromitscaptiveminesby2017.Inthisregard,the
GovernmentofIndiahassofarallotted10coalblockstoNTPC.Moreover,tocarryoutitspowertradingbusiness,NTPC
hassetupasubsidiarynamedNTPCVidyutVyaparNigam.Inordertofacilitatepowertradinginthecountry,'National
PowerExchange',ajointventureofNTPC,NHPC,PFCandTCShasbeenformedforoperatingthepowerexchange.
Intheashutilizationbusiness,NTPC'sflyashgeneratedintheprocessofgeneratingelectricityisusedasaraw
materialbycementcompaniesandbrickmanufacturers.Inthisregard,NTPCVidyutVyaparNigam(NVVN)isengaged
inthebusinessofflyashexportandsaletodomesticcustomers.Moreover,inthepowerdistributionbusiness,the
companythroughitssubsidiary,NTPCElectricSupplyCompany(NESCL),isengagedinthedistributionandsupplyof
power.NESCLisalsoengagedinthe'GrameenVidyutikaranYojana'programforruralelectrification.Inaddition,NTPC
hasventuredintothepowerequipmentmanufacturingbusinessbyformingjointventurewithBHELandBharatForge.
NTPChasalsoacquiredstakeinTransformersandElectricalsKerala(TELK)formanufacturingandrepairof
transformers.
NTPC'sdiversifiedbusinessoperationsstrengthenitscompetitiveadvantageinthepowergenerationandservices
business.
Strongresearchanddevelopmentcapabilities
NTPC'sresearchanddevelopment(R&D)activitiesprovidehighendscientificservicestoallthecompany'sstations,
andincreasestheavailabilityandreliabilityofitsstationsbyprovidingconditionassessment,failureanalysis,and
solvingandanalyzingtheirspecificproblemandhelpingtheminincreasingtheavailabilityandreliabilityoftheunits.To
carryoutitsR&Dactivitiesinastructuredmanner,NTPChasappointedIndianInstituteofScience,Bangaloreas
consultantforstrategicgapanalysis,benchmarkingwithbestpractices,preparingstrategicroadmap,networkingwith
nationalandinternationallabs,andsourcingofmanpower.ThroughtheconsultationoftheIndianInstituteofScience,
NTPChasintegrateditsR&Dandenergytechnologydepartmentsintoasingleentitynamely,NTPCEnergyTechnology
ResearchAlliance(NETRA).NETRAfocusesonareasofefficiencyimprovement,costreduction,renewableand
alternateenergy,climatechange,andscientificsupporttoutilities.DuringFY2015,thecompanyinvestedINR1,295.6
million($21.2million)onR&D.
InFY2015,NETRAhasundertakenmanyprojectsandactivitiesforimplementationsuchascomputationalfluid
dynamics(CFD)modelingofthefluegasductatTandaandSingraul.CFDmodelingofVindhyachalStagefourCW
Intakesystem,forebay,andsumpwasundertakenbyNETRA.NETRAalsoanalyzedthepapermoisturecontentin
powertransformersinvariousNTPCplantssuchasSimhadri,Dadri,andKildam,Randa,Faridabadetc.through
FrequencyDomainSpectroscopy(FDS)techniquewhichhelpedstationstotakedecisionsofonlineoroffline
drying/filtration.
Thecompany'sstrongR&Dandtechnologicalexpertiseenablesittoimproveitsservicesfurther.Thisinturnwillhelp
NTPCtoestablishabrandimageinthecompetitiveIndianpowermarket.
Weakness

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Overview
Lackofownedtransmissionanddistributionassets
Unbalancedfuelmix
DependenceonCILforcoal
Detailed
Lackofownedtransmissionanddistributionassets
NTPCdoesnotownanytransmissionanddistributionassets.InIndia,thepowertransmissionanddistributionsystemis
athreetierstructurecomprisingdistributionnetworks,stategrids,andregionalgrids.Thedistributionnetworksare
ownedbythedistributionlicenseesandthestategridsareprimarilyownedandoperatedbyrespectivestateutilities.In
ordertofacilitatethetransmissionofpoweramongneighboringstates,stategridsareinterconnectedtoformregional
grids.MostoftheinterstatetransmissionlinksareownedandoperatedbyPowerGridCorporationofIndia.Asaresult,
NTPChastransmissionanddistributionagreementswithdistributionlicensees,stateutilities,andalsowithPowergrid
CorporationofIndia.
Thecompanyis,therefore,dependentonotherpartiesfordeliveryofelectricityfromitsgeneratingstationstoitsend
customers,andisnotinapositiontoleverageonthepresenceofelectricaltransmissionanddistributionnetworkto
enhanceitsmarketshare.
Unbalancedfuelmix
NTPC'sfuelmixisunbalancedwithcoalformingmajorityofitsfuelmix.Thetotalinstalledcapacityofthecompanyis
44,398MWhavingafuelmixcomprisingof75%coal,9%gas,1%hydroand0.2%renewableenergysources.Coal
firedpowergenerationhashigheremissionsthancleanburningfuelssuchasnaturalgas.Asenvironmentalconcerns
increaseandtheavailabilityofnaturalgasrises,coalfiredgenerationassetshasturnedintoaliability.Besides,coal
firedthermalpowerstationsoperatewellbelowtheirtotalgenerationcapacityascomparedtomostnuclearpower
plants.Thecompany'sdependenceuponcoalfiredpowergenerationassetscouldweakenitscompetitivepositionin
mediumtolongterm.
DependenceonCILforcoal
ThecompanyhassignedcoalsupplyagreementswithvarioussubsidiarycoalcompaniesofCoalIndiaLimited(CIL)for
allthecoalbasedstationswhichwereundercommercialoperation.Thecompanyhaslongtermcoalsupply
agreementsfor33,515MWfortheirunitsalreadycommissioned/tobecommissioned.Furthertoenhancecoalsupplyat
criticalunits,ShorttermMOUhasbeensignedwiththeEasternCoalfieldsLimitedinFY2015fortheirsupplyof5million
metrictons(MMT)ofcoal.AnothershorttermMoUhasbeensignedwiththeNorthernCoalfieldsLimitedinFY2015for
thesupplyof3MMT.DuringFY2015,thecompanyreceived138.6MMTfromCIL,12.5MMTfromTheSingareni
CollieriesCompany(SCCL)andsevenMMTofcoalwasprocuredthroughbilateralMoU.
AninterruptionordelayinthesupplyofcoalforNTPC'sthermalpowerstationswouldleadtoadeclineinthecompany's
powerproduction.Thiscouldhaveamaterialadverseeffectonitstopline.
Opportunity
Overview
Gtringdemandforelectricity
Collaborationstoenhanceoperations
Detailed
Gtringdemandforelectricity
India'selectricityretailingmarketdemonstratedverystrongelectricityconsumptiongtrthasawholeforthe20112015
period,whilevaluegtrthsawremarkabledoubledigitgtrthinthefaceofrisingelectricityprices.Accordingto
MarketLine,theIndianelectricityretailingmarketgeneratedtotalrevenuesof$107.4billionin2015,representinga
compoundannualgtrthrate(CAGR)of15.8%between2011and2015.Themarketconsumptionvolumeincreasedwith
aCAGRof6.3%during201115periods,toreachatotalof1,026.9TWhin2015.Industrialsaleshadthehighest
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volumeintheIndianelectricityretailingmarketin2015,withtotalsalesof395.2TWh,equivalentto38.5%ofthe
market'soverallvolume.Incomparison,salestocommercial&publicservicescustomersareexpectedtoreacha
volumeof339.8TWhin2015,equatingto33.1%ofthemarkettotal.
Further,MarketLineforecaststhemarkettogtrataCAGRof13.4%forthefiveyearperiod201520,whichisexpected
todrivethemarkettoavalueof$201.6billionbytheendof2020.Similarly,themarket'svolumeisexpectedtoriseto
1,476.9TWhbytheendof2020,representingaCAGRof7.5%forthe20152020period.
Totakeadvantageofthesituation,NTPCisconsistentlyworkingtowardshavinganinstalledcapacityof128gigawatts
(GW)bytheyear2032withawelldiversifiedfuelmixcomprising56%coal,16%gas,11%nuclearenergy,and17%
renewableenergysources,includinghydro.Assuch,bytheyear2032,28%ofNTPC'sinstalledgeneratingcapacitywill
bebasedoncarbonfreeenergysources.Further,thecoalbasedcapacitywillincreasinglybebasedonhighefficient
lowemissiontechnologies.Therefore,thecompanyiswellpositionedtocapitalizeonthegtringdemandforelectricityin
India.
Collaborationstoenhanceoperations
NTPChasenteredintoanumberofcollaborationstodevelopandenhanceitsportfolioofbusiness.Forinstance,in
March2016,NTPCandIITDelhisignedaMoUforResearchandDevelopmentintheareasofmutualinterestsuchas
simulationandmodeling,heattransferandthermalprocess,artificialintelligence,CFDmodeling,solarPVand
renewableintegration.UnderthisMoU,jointR&Dprojectswillbetakenupfordevelopmentofnewtechnologies,and
performanceimprovement,amongothers.FurtherinFebruary2016,NETRAsignedcontractagreementswithDLR
CologneforResearchinSolarThermalandISEFraunhoferforResearchinSolarPV.NETRAplanstosetupevaluation
facilitiesforCSP,CPV,andSolarPVandconductvariousprogramsforknowledgesharing,capacitybuildingwith
GermanInstitutionintheareaofSolarEnergy.
SimilarlyinDecember2015,NTPCandTERIsignedanagreementforcollaborativeresearchon"Optimizingresource
useandreducingwaterfootprintsofelectricitygenerationinIndia".Thesecollaborativememorandumswillhelpthe
companydevelopandenhanceitsoperations,whichinturncoulddriveitsrevenueandearningspotential.
Threat
Overview
Increasingcompetition
Strictgovernmentalregulations
Operationalrisks
Detailed
Increasingcompetition
NTPCfacesincreasingcompetitioninthepowergenerationsectorinIndiaduetoenhancedinvestmentsinthesector
usheredbyreforms.TheElectricityAct2003hascreatedaliberal,transparent,andenablinglegalframeworkforpower
development.Ithasalsofacilitatedinvestmentbycreatingcompetitiveenvironmentandreformingthedistribution
segmentofpowerindustry.Asaresult,NTPCcouldfaceincreasingcompetitioninthefuturefromprivateplayerslike
RelianceInfrastructure,CESC,TorrentPower,andTataPowerCompany,amongothers.AstheIndianpowersector
becomesmorecompetitive,itwouldresultinpressureonpricesandmarginsandasaconsequencealossofmarket
shareandrevenuesforthecompany.
Strictgovernmentalregulations
NTPC'soperationsaresubjecttovariouscentralandstatelawsinrelationtopower.InIndia,theresponsibilityforthe
developmentofthepowerindustryissharedbetweenthecentralgovernmentandthestategovernments.TheElectricity
Act2003providestheoveralllegislativeframeworkforthesector.TheMinistryofPower(MoP)overseestheoperationof
allcentralsectorpowerutilities.TheCentralElectricityAuthorityadvisestheMoPonelectricitypolicyandtechnical
matters.TheIndiangovernmenthasalsoconstitutedtheCentralElectricityRegulatoryCommission(CERC)asper
legislativerequirementtoregulatethetariffsforthecentralpowerutilitiesandotherentitieswithinterstategenerationor
transmissionoperations.TheElectricityAct2003alsorequiresstategovernmentstosetupStateElectricityRegulatory
Commissionsforrationalizationofenergytariffsandformulationofpolicywithineachstate.
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NTPChastoabidebytheframeworkandregulationsframedbytheseinstitutions.Thismaycausethecompanytoincur
additionalcostsintheformoftaxesandincreasestheoperatingcostswhichinturndecreasethecompany'sprofits.
Futurechangesintheregulationsoftheseinstitutionswouldadverselyaffectthecompany'soverallperformance.
Operationalrisks
NTPCissubjecttooperationalrisks.Asoperatingefficienciesofthecompany'splantsreducesandbeyondapointin
timeevenshuttingdownandreplacementoftheseplantsbecomeimperative.Ifthecompanyisnotallowedtobuild
replacementplantsatthesiteswherecurrentgeneratingstationsexist,thecostofevacuatinganddistributingpower
fromfarflunglocationsintothelicensedareawillincreasesubstantially,inturnimpactingqualityofservicedeliveryand
profitability.Further,thereisanotherassociatedriskofhighqualitycoal,whichiscoalwithlowashcontentandhigh
heatvalue.SomeofNTPC'solderplantshadbeendesignedforhighqualitycoalasinputenergysource.Withthe
supplyofthistypeofcoaldryingup,itwillbecomemoredifficulttooperatethesegeneratingstationsaswellreplacing
thesewithnewplantscapableofusingcurrentlyavailablequalitiesofcoal.Theseoperationalrisksmayhinder
efficiencyofthecompanyandimpactitsbusinessadversely.

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