Demand uptick positive for NTPC, Coal India; price uptrend may continue

Global energy prices were high by the third quarter of the 2021-22 financial year (Q3FY22) and shot up more after the start of the Ukraine War (late Feb 2022). Oil, gas and coal, all experienced supply disruptions. The combination of a hot summer (more demand for air-conditioning and refrigeration) and stronger economic activity led to higher power demand. Notably thermal coal is globally more expensive than coking coal at the moment indicating the slowdown in the metals industry.  

Power consumption in Q1FY23 surpassed pre-Covid-19 levels of Q1FY20. Given the high reliance on thermal coal, this meant a good quarter for Coal India. It also meant a good quarter for NTPC, which is India’s largest generator. Both public sector undertakings (PSU) have seen bullish price action.

For Coal India, revenue increased 39 per cent year-on-year (YoY) to Rs 35,100 crore, with offtake up by 10.5 per cent to 177.5 million tonnes and 26 per cent YoY increase in average realisation at Rs 1,829 per tonne. The earnings before interest, tax, depreciation and amortisation (ebitda) of Rs 12,250 crore was up 153 per cent YoY with an ebitda per tonne of Rs 690. The reported net profit was up 178 per cent YoY at Rs 8,830 crore.  

The Fuel Supply Agreement (FSA) realisation was Rs 1,443 per tonne and the e-auction realisation was Rs 4,340 per tonne. Coal India will continue to benefit from high thermal demand, high international prices and higher e-auction premiums – e-auctions has seen 175 per cent YoY rise in realisations. Management guidance is e-auction volumes at 100 million tonnes in FY23.

The sequential numbers are less impressive but good. Offtake was down 1.5 per cent at 177.5 MT versus 180 MT (Q4FY22). Revenues are up 7 per cent quartrt-on-quarter (QoQ). Averaged realisation is up 10 per cent QoQ and ebitda per  tonne is up 37 per cent.  The e-auctions volumes were down 24 per cent QoQ with realisations up 78 per cent QoQ. Receivables in FY22 were down to a still substantial 38 days, from 79 days in FY21. Receivables are expected to rise to 41-42 days in FY23.

For NTPC, standalone Q1FY23 revenue was up 47 per cent YoY at Rs 38,300 crore (Rs 26,030 crore in Q1FY22) mainly due to better generation. Generation grew 21.6 per cent YoY at 86.8 billion units. Reported net profit rose 16.9 per cent YoY at Rs 3,670 crore. The Q1FY23 adjusted net profit grew 6.2 per cent YoY to Rs 3,350 crore. The ebitda increased 22 per cent YoY at Rs 9,080 crore, also due to improved plant load factor (PLF).

The ebitda margin fell 488 basis points to 23.7 per cent, due to higher fuel cost, which was up 76.5 per cent. This is despite FSA with Coal India, and captive coal blocks, which leaves it much less exposed to e-auctions. Overdue Receivables were close to Rs 500 crore– a source for worry for both NTPC and Coal India.

Gross generation was 86.8 billion units in Q1FY23 vs 71.4 billion units in Q1FY22, up 22 per cent YoY. PLF at coal plants rose to 80.3 per cent in Q1FY23 vs 69.6 per cent in Q1FY22 (PLF was 76.0 per cent in Q4FY22). Solar, wind- & hydro-based plants PLF also improved YoY in all three categories.

The Board has approved the hiving off of renewable energy (RE) assets along with subsidiary, NTPC Renewable Energy, to a wholly-owned company, which will look for either listing or a strategic investor. Management says 8-9 companies have expressed interest. The capex targets of Rs 22,400 crore for FY23 includes 1.5 GW of RE and 3.5 GW on conventional capacity.

In the last month, Coal India is up 6.5 per cent (the Nifty50 is up 1.1 per cent) while NTPC is up 1.5 per cent. Most analysts have ‘buy’ calls with one Coal India valuation at Rs 294, while various analysts have valued NTPC at between Rs 188-195.