Secured fuel linkage holds the key to NTPC's steady future performance

After six consecutive quarters marked by a stagnant performance, India's largest power producer NTPC surprised the market with a smart 38% growth in profits in the March 2011 quarter. The company achieved this feat despite costs in the form of provisions, taxes, other expenditure, which rose substantially while other income fell.

During the quarter, the company's plant load factor or capacity utilisation fell 4% for coalbased plants and 13.1% for gasbased plants. However, its high plant availability factor allowed it to earn certain payments from state electricity boards in spite of they lowering purchases.

The company's provisions jumped over 30-fold while the other expenditure spurted 71%. Other income was down 17.6% while tax provisions rose seven times compared with the March quarter last year. Key positives for the company were a 26% growth in net sales to Rs 15,518.9 crore, which was driven by a 1.08% volume growth to 57.9 billion units and higher prices. The volume growth was made possible by capacity additions earlier in the year. Higher prices also enabled it to improve its operating profit margins by 290 basis points to 26.8%.Another positive was writeback of depreciation, which reduced the depreciation burden by 5% against the yearago period. Recently, the ministry of coal cancelled five coal blocks allocated to NTPC with reserves of up to three billion tonne.

However, the company has already spent up to Rs 500 crore on these five blocks, which makes it confident of obtaining the same blocks back from the government. To bridge the gap in coal supply in the near term, the company is planning to import 15.4 million tonne coal during FY12. Out of this, orders for nearly 12 million tonne have already been placed. For the current fiscal, NTPC has earmarked a capital outlay of Rs 30,843 crore for addition to its power generation capacity.

The company's steps to import coal are expected to fill up the gap created by delays in supplies from its domestic linkages. For the next 2-3 years, before its captive coal mines ramp up production , the company will have to depend on imported coal. Although NTPC is in a position to pass on high input costs, a secured fuel linkage holds the key to its steady future performance.