Fundamental Analysis of NTPC: The stock of NTPC has appreciated by only 12.32% in the last five years. At the same time, its revenues and net profit grew by 8-10% compounded annually. If income rose so sharply, why didn’t the stock price? Or is NTPC a dividend stock with a dividend yield of 4.12%? If yes, does it make sense to put money in the stock? In this article, we answer all such questions by performing a fundamental analysis of NTPC.
Table of Contents
Fundamental Analysis of NTPC
In this article, we shall conduct a fundamental analysis of NTPC. We will get ourselves acquainted with the history and business of the company, followed by the Indian power industry overview.
Later, a few sections are devoted to assessing revenue & profitability growth, return ratio, and debt analysis. A highlight of the future plans and a summary conclude the article at the end.
Company Overview
NTPC Ltd. (formerly National Thermal Power Corporation) was incorporated 47 years ago in November 1975. It is an Indian central public sector undertaking (CPSU) under the Ministry of Power, Government of India. The government holds a majority stake 51.1% stake in the company.
NTPC has a diversified portfolio of coal, gas, solar, wind, hydro, and small hydro-based power plants. Its operations are well integrated both backward and forward, into coal mining and power trading respectively.
As of the present date, is the largest power company in India with a total installed generation capacity of 69,134 MW. It is a market leader in energy production, accounting for 24% of the nation’s electricity supply. NTPC’s share in the total power generation capacity stands at a whopping 17% of the total capacity.
Not just in terms of size, NTPC also leads the Indian power sector in terms of efficiency. The company’s average PLF, a measure of power generation stood at 71% in FY22, way above the country’s average of 59%.
In addition to this, it has made inroads into consultancy services, power trading, and ancillary services within the broad energy sector. The CPSU has set up a 25% market share target in ancillary services and storage by 2032.
Having known the business and the huge scale NTPC operates, let us now move to the next section covering India’s energy sector landscape.
Industry Overview
India is the third largest electricity producer in the world with an installed power generation capacity of over 3,99,496 MW. The nation’s capacity grew at a CAGR of 8.1% over the last decade.
Total Installed Power Generation Capacity
Out of the total production, coal-fired power plants accounted for 52.7% of the total energy capacity. It was followed by the 27.5% share of renewable energy generation. Hydro and gas made up 11.7% and 6.2% of the installed capacity respectively.
Power Transmission Sector in India
The energy produced by the power companies is transmitted through transmission companies. India’s transmission infrastructure has always lagged behind its power generation capabilities. Thus, there is an extra focus to streamline energy transmission operations with the country’s production capacity.
The nation grew its transmission capacity at a CAGR of 6% from 3,20,000 ckm in 2016 to 4,56,716 lacs circuit kilometers (ckm) in 2022. Similarly, the transformation capacity increased from 8,26,958 MVA to 10,79,766 MVA during the same period.
Power Trading in India
Talking about power trading in India, power producers sell electricity to distribution companies by engaging in power purchase agreements. In FY22, 95% of the power produced in the nation was traded through long-term PPAs. The balance of 5% was via short-term trading means.
Renewable Energy Generation in India
At the end of FY22, the country’s renewable energy (RE) capacity was recorded at 156.61 GW, 39.2% of the nation’s total installed energy capacity. Thus, the RE sector is projected to grow at a CAGR of 14.23% every year.
There is another noteworthy topic of India’s growth story. Even though energy consumption has doubled since 2000, India’s energy use on a per capita basis is less than half of the world average. This supports the argument that overall power demand in India is expected to grow at a strong pace.
Having covered the power industry landscape, let us now move on to the revenue and net-profit growth of the company as per our fundamental analysis of NTPC Limited.
NTPC – Financials
Revenue & Net Profit Growth
The operating revenue of NTPC has grown at a CAGR of 8.55% from Rs 88,083 crore in FY18 to Rs 132,669 crore in FY22 over the last five years. During the same period, its net profit compounded at a rate of 10.06% every year to Rs 16,960 crore in FY22.
We can see that the bottom line fell sharply in FY19. During that fiscal year, the net profit took a big hit to the tune of Rs 4,071 crore because of the regulatory deferral account charge.
The rate at which NTPC sells electricity is determined by Central Electricity Regulatory Commission (CERC) after taking into account costs like interest, depreciation, operation & maintenance expenses, etc. with a defined margin for profit.
NTPC maintains a regulatory deferral account to adjust gains/losses which become recoverable from or payable to the beneficiaries as per the regulated tariff. Over the period, debits/credits result in recovery/reversal of regulatory deferral account balances.
The table below highlights the operating revenue and net profit growth of NTPC for the last five financial years.
| Year | Operating Revenue (Rs Cr) | Net Profit (Rs Cr) |
| 2022 | 132,669 | 16,960 |
| 2021 | 111,531 | 14,969 |
| 2020 | 109,464 | 11,902 |
| 2019 | 100,287 | 14,034 |
| 2018 | 88,083 | 10,501 |
Margins: Operating and Net Profit
NTPC uses coal, gas, naphtha, oil, and biomass pellets as fuel to produce electricity. It is the largest cost for the power company. Coal prices have a significant bearing on the operating profit margins. Similarly, regulatory deferral account charge/credit affects the net profit margin of the company.
Except for some volatility, the figures below tell that the operating profit margin and net profit margin both have improved overall over the years.
| Year | OPM (%) | NPM (%) |
| 2022 | 21.72 | 12.01 |
| 2021 | 22.89 | 12.80 |
| 2020 | 22.00 | 10.50 |
| 2019 | 20.20 | 13.32 |
| 2018 | 18.75 | 11.41 |
High debt levels are common across all utilities because of heavy capital expenditure required by them. In the next section of our fundamental analysis of NTPC, we perform a debt analysis of the company.
Debt/Equity & Interest Coverage
For a utility company with the government of India’s backing, the debt-to-equity ratio of NTPC is in the acceptable range. As a plus point, its counterparties to the power purchase agreements are the state electricity transmission companies. This provides long-term revenue visibility to the company.
Thus, sovereign backing and sovereign counterparties both give the status of a sound financial position to the power company.
It has the highest credit ratings for its bonds and bank borrowings. Additionally, its international ratings are equivalent to the sovereign ratings.
The table below highlights the debt-to-equity ratio and the interest coverage ratio of NTPC for the last five fiscal years.
| Year | Debt/Equity | ISCR |
| 2022 | 1.33 | 4.72 |
| 2021 | 1.46 | 4.42 |
| 2020 | 1.46 | 4.45 |
| 2019 | 1.33 | 5.26 |
| 2018 | 1.19 | 5.93 |
Return Ratios: ROCE & ROE
In this section, we’ll take a quick look at the company’s return ratios: return on capital employed (RoCE) and return on equity/net worth (RoE/RoNW) as part of our fundamental analysis of NTPC.
We can note that the return on equity has increased over the past few years while the return on capital has come down marginally. This points to the increased financial leverage and lesser tax burden in recent years.
| Year | ROE/RONW (%) | ROCE (%) |
| 2022 | 13.04 | 8.66 |
| 2021 | 11.84 | 7.89 |
| 2020 | 10.17 | 10.48 |
| 2019 | 12.60 | 12.51 |
| 2018 | 10.11 | 11.52 |
NTPC – Future Plans
So far we looked at only the previous fiscal years’ figures as part of our fundamental analysis of NTPC. In this section, we take a look at what lies ahead for the company and its shareholders.
- NTPC has been making inroads in renewable energy generation. In the present fiscal, the company commissioned an RE capacity of 502 MW. Additionally, it has won a 3,265 RE capacity under competitive bidding and a hybrid project of 450 MW.
- To facilitate the Green Hydrogen transition, the company was awarded the nation’s first green hydrogen-based micro-grid project of 50KW.
- It is presently constructing a coal-based power plant of 1,320 MW capacity in a joint venture with the Bangladesh Power Development Board.
- The management has set a long-term target of a total installed power generation capacity of 130 GW by 2032, including 60 GW of renewable power. In addition to this, it has set up a 25% market share target in ancillary services and storage by 2032.
Fundamental Analysis of NTPC – Key Metrics
We are almost at the end of our fundamental analysis of NTPC. Let us take a quick look at the key metrics of the stock.
| CMP | ₹188 | Market Cap (Cr.) | ₹1,80,357 |
| EPS | ₹17.87 | Stock P/E | 10.41 |
| ROCE | 8.66% | ROE | 13.04% |
| Face Value | ₹10.0 | Book Value | ₹146.00 |
| Promoter Holding | 51.1% | Price to Book Value | 1.16 |
| Debt to Equity | 1.33 | Dividend Yield | 4.12% |
| Net Profit Margin | 12.01% | Operating Profit Margin | 21.72% |
In Conclusion
In our fundamental analysis of NTPC, we got to know how NTPC as a giant is leading the Indian energy industry. Being a government enterprise, it has to give away almost 40% of its earnings as dividends. This makes the state-owned company a dividend stock.
Investors who are looking for a regular income and mild capital appreciation may want to add the stock to their watchlist. In your opinion, can NTPC give heavy returns to its shareholders? Or is it a slow-moving, safe stock? How about you let us know in the comments below?
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