Rating Rationale

Strengths:
* Dominant position in India's power generation sector
NTPC is India's largest power generation company, accounting for 15.48% of the overall installed capacity, and 22% of the power generated. Consolidated installed capacity increased to 58.2 gigawatt (GW) as on December 31, 2019. With planned capacity addition of 5-6 GW in fiscal 2021, the company shall retain its dominant position in the power generation sector.

* Strong business risk profile
NTPC's thermal capacities are fully backed by long-term power purchase agreements (PPAs). These PPAs are based on the Central Electricity Regulatory Commission's (CERC's) classic two-part tariff structure, which ensures complete recovery of fixed expenses, including debt-servicing charges. It also provides for fixed return on equity, based on achievement of the normative plant availability factor mandated by the regulator, which NTPC continues to maintain. For fiscal 2019, the coal-based and gas-based plants reported plant availability factors (PAF) of 87.11% and 92.18%, respectively, well above their respective normative levels. For the nine months ending December 31, 2019, PAF remained healthy at 87.81% and 94.14% respectively.

* Healthy financial risk profile
Gearing is moderate, while debt protection metrics are comfortable, and liquidity remains robust. Consolidated gearing increased slightly to 1.4 times as on March 31, 2019, from 1.26 times a year earlier, on account of debt raised to fund the ongoing capacity expansion. Though gearing will increase over the medium term (in-line with yearly capital expenditure [capex] plan), it will remain comfortable, as the funding mix will remain well within the stipulated norm of 70:30 prescribed by the CERC. Liquidity remains robust, aided by consolidated cash balance of Rs 2,615 crore as on December 31, 2019. Though liquidity has reduced over the years due to ongoing capex, it is likely to remain healthy over the medium term.

* Strategic importance to GoI
The government has given Maharatna status to NTPC. As a part of its divestment plan, GoI pared its shareholding in NTPC to 54.14% as on December 31, 2019. Nevertheless, GoI remains the majority shareholder. In the past, the government had provided need-based financial support, through guarantees, for foreign currency borrowings, and may continue to do so. NTPC also remains strategically important to GoI, as it accounts for nearly a fourth of the power generated in the country.

Weaknesses:
* Weak credit risk profile of customers
Customers, which are mostly state power utilities (SPUs), have weak credit risk profiles, and thus, timely collection of receivables remains a key rating sensitivity factor. However, collection efficiency has been consistent at 98-100% in the past eight years. As a result, receivables were low, at about 40 days over the five fiscals ended March 31, 2019. The renewal of the tripartite agreement between NTPC, state governments, and the central government enables the company to recover its dues from defaulting SPUs, from the Reserve Bank of India's devolution to state governments.