Quick Take

NTPC - SELL Utilities 28 Aug 2008

NTPC Dadri plant visit

CMP Rs171 Price performance (%)
NTPC hosted a plant visit to the NTPC Dadri plant over the last
weekend. We came back impressed by the operational efficiency of the 1M 3M 1Y
12-mth Target price (Rs) 140 (-18%)
NTPC -8.7 -3.5 2.0
existing plants and progress achieved on the proposed expansion. Here Rel. to Sensex -8.9 8.7 5.6
are the key takeaways from our visit. Market cap (US$ m) 32,344
Reliance Infra -1.8 -23.4 26.6
Bloomberg NATP IN Tata Power 0.2 -25.4 46.6
• 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 CESC -9.5 -29.1 -27.0
(840MW on coal and 829MW on gas). 52Wk High/Low (Rs) 291/148 Stock movement
• The coal-based station’s boiler can be fired using 100% furnace oil as well. Diluted o/s shares (m) 8245
Volume Price (Rs)
The gas station has two modules, each consisting of four 130.2MW gas Daily volume (US$ m) 33.5 40 300
Shares (m)
turbines, with a waste-heat recovery boiler and two 154.5MW steam Dividend yield FY09ii (%) 2.2 35 250
30
turbines. Free float (%) 10.5 25 200

•
20 150
The station has the largest switchyard in India, with power-handling Shareholding pattern (%) 15 100
10
capacity of 4,500MW. Promoters 89.5 5 50
• As a part of the infrastructure for the Commonwealth Games, the station is FIIs 4.1 0 0

Aug-07

Oct-07

Nov-07

Feb-08

Apr-08

May-08

Jul-08

Aug-08
Domestic MFs/Insurance cos 2.5

Jan-08
adding coal-based capacity of 980MW (Stage II expansion) consisting of Others 3.8
two units of 490MW each.
• The plant is spread over 2,665 acres, making it one of the largest sites in
Figure 2: Summary of operations
India. The station has ~1,130 employees, who have been given
Existing operations
accommodation in an integrated township adjacent to the plant. Proposed expansion
•
Coal Based Gas based
The Dadri plant is 50km away from Delhi, in the state of Uttar Pradesh.
840MW 829MW 980MW
Road connectivity to the plant has improved of late, thanks in large part to Capacity (MW) (4x210) (4x130.19 GT (2x490)
NTPC’s efforts. 2x154.51 ST)
Figure 1: NTPC’s Dadri plant – land usage for current and proposed capacity Fuel Source North Karanpura HBJ pipeline North Karanpura
100% = 2,665 acres Water Source Mat Branch Canal Mat Branch Canal Mat Branch Canal
Plant Area 980MW Ash Mount area
Capex/ investment
Stage II 21% 16.7 9.6 51.4
(Rs bn)
13%
UP, Uttaranchal, HP,
Railw ay siding Chhattisgarh, J&K, Delhi (900MW),
Tow nship Beneficiaries Delhi, UP
6% Rajasthan, Punjab, Delhi, UP (80MW)
15% Railways
Reservoir Stage II GT I: 02/92
Approach road 8% Unit I: 10/91 GT 2: 03/92
1% Unit 2: 12/92 GT 3: 06/92 Unit 5: 09/09
Plant Area 829MW CoD
Unit 3: 03/93 GT 4: 10/92 Unit 6: 01/10
Plant Area 840MW gas Unit 4: 03/94 ST 1: 11/93
34% 2% ST 2: 02/94
GT: Gas turbine, ST: Steam turbine. Source: Company, IIFL Research
Source: IIFL Research

h a rsh .dole@iif lcap.com

 NTPC - SELL

Dadri coal plant has the highest PLFs among all of NTPC’s units Environment-friendly unit

• 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.
• 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
Figure 3: Coal-based units have recorded higher PLFs than gas-based units, thanks around the plant. The 550-acre ash mound acts as an ecosystem for
to firm fuel linkages both flora and fauna.
Coal based units Gas based units
100% 95.7% 96.1% Figure 4: Ash utilisation to develop a nature park in the power plant complex
95% 92.8% 92.0%
90%
85%
80% 77.0%
75.1% 74.2%
75% 72.0%
70%
65%
60%
FY05 FY06 FY07 FY08

Source: IIFL Research

Source: IIFL Research

h a rsh .dole@iif lcap.com 2


Brownfield expansion: on track for completion ahead of schedule
• 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
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
Source: IIFL Research
h a rsh .dole@iif lcap.com
NTPC - SELL
Other observations
Employee morale at Dadri plant running high
• 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.
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.
3
 NTPC - SELL

Figure 7: Dadri station has 15 days’ coal inventory

Coal Inventory

Source: Google Maps, IIFL Research

Figure 8: NTPC Dadri

Coa l
G as u nits
inve nto ry

4 ,5 00 MW
Die sel Si te for
switch yar d
sto ra ge exp a nsio n

Exi sti ng co al
un its

Coo lin g
to we rs
Harshavardhan Dole Avi Mehta
harsh.dole@iiflcap.com avi.mehta@iiflcap.com
(91 22) 6620 6660 (91 22) 6620 6650
Source: Google Maps, IIFL Research

h a rsh .dole@iif lcap.com 4

 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 5