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NTPC Generating Power

The largest power generating company of India would be a good bet

The largest power generating company in India, NTPC is one of the more popular public sector undertaking (PSU) stocks wherein the government owns close to 89.5 per cent of the shareholding.

With a vision to emerge as an integrated player, the company is looking to span both the thermal and nuclear power generation segments.

To implement its intent, NTPC has been in talks with NPCIL for a 51:49 joint venture to develop nuclear plants all over the country, while it is eyeing a similar tie-up with Coal India (CIL) to set up a power plant near Brahmani coal mine — in turn CIL would supply it with its highest grade coal.

Currently, NTPC has a power generation capacity of 30,144MW, which it plans to increase to 50,000MW by 2012.

As of March 31, 2008 NTPC had over Rs 28,000 crore in liquid cash, i.e. more than twice its current liabilities. This mountain of cash gives it a unique opportunity to push its aggressive expansion plans in talks with potential suppliers and thereby evade the fate of  most other power plants in India which run under full capacity due to a dearth of natural resources like coal or gas.

Its strong presence in the segment is also making it possible to gain greater freedom in taking decisions on its own. In the upcoming Budget, it may be allowed to make an acquisition of up to $1.7 billion (Rs 8,100 crore) without prior clearance from the Cabinet, which will help expedite decision-making while pursuing inorganic growth opportunities through takeovers, joint ventures and subsidiaries, both inside and outside India. Currently, such investments in a single project are capped at Rs 1,000 crore.

All of the above positives are flowing because of the company’s excellent track record. For FY09 it has achieved better operational performance than its industry peers, which has powered its profitability. Its profits for FY09 went up by 10.61 per cent year-on-year (y-o-y), though its operating profits were down 5.10 per cent y-o-y. The company also received a one time tax refund of Rs 240 crore from the Income Tax department.

It is also going to be a beneficiary of a pending rule change. The return on equity (RoE) of the company remained flat at 21 per cent. But with the new taxation policy to come into being in FY10, the method of computation of RoE for power companies has been changed from post-tax to pre-tax basis. Hence, NTPC would be able to better its RoE and still retain tax benefits.

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