Higher depreciation, fuel costs short-circuit NTPC profits

NTPC had to shell out a lot more money for fuel. Fuel costs rose 29.4% to Rs10,793 crore in the December quarter

In theory, NTPC Ltd scores over other power generators in that it has surer fuel supplies; it gets preference over domestic coal supplies, can pass on fuel price increases. Coal India Ltd guarantees almost 80% of NTPC’s fuel requirements compared with just 50% for private producers, and recently the government decided to reallocate captive coal blocks to the utility after cancelling them in 2011.

In practice, disruptions occur and NTPC has to rely on imported coal to make up the deficit. Indeed, plant availability factor had plunged to an alarming 73.8% in the September quarter. In the December quarter, though, things improved. Yet, capacity utilization remained at some 84% compared with 87% a year ago. Lower capacity utilization also wreaked havoc on margins and profitability.

Thus, although NTPC’s revenues rose, profits declined. In the three months ended December, the company’s revenues increased 14.2% over a year ago to Rs15,332.3 crore aided by tariff hikes in many states and new capacity additions. That, however didn’t prove enough.

For one, financially hamstrung state electricity boards (SEBs) aren’t lifting enough output, preferring blackouts to expensive power. Angel Broking Ltd estimates the company lost out 9.2 billion units of power generation because of this. Moreover, the states aren’t prompt in payment. By the end of September, NTPC’s debtor days had risen to 67 days, well over the mandated 2 months within which SEBS have to pay. Lower power production also means lower incentives, another hit to profitability.

Second, NTPC had to shell out a lot more money for fuel. Fuel costs rose 29.4% to Rs10,793 crore in the December quarter. Third, as the company commissioned some 1800 megawatts (MW) of capacity during the course of this fiscal, depreciation costs are mounting. The company had to set aside Rs756 crore, a quarter more than a year ago, for wear and tear. Add to this an almost 40% increase in interest costs and it’s no wonder net profit declined. Profit after tax fell a more-than-expected 10% to Rs2,130 crore.

As NTPC aims to add 4,300MW by the end of this fiscal, notwithstanding problems in land acquisition, these problems are likely to continue.