Rating Rationale

Strengths
* Dominant position in India's power generation sector
NTPC is India's largest power generation company with 16% of the country's overall installed power generation capacity, accounting for 24% of the power generated in India. The consolidated installed capacity increased to 53.7 gigawatt (GW) as of September 30, 2018. With yearly capacity addition plans of 2-3 GW, the dominant position in the power generation sector is expected to continue over the medium term.

* Strong business risk profile
All the thermal capacities of NTPC have long-term power purchase agreements (PPAs) in place. These PPAs are based on the Central Electricity Regulatory Commission's classic two-part tariff structure which ensures recovery of all fixed expenses, including debt-servicing charges, and provides for fixed return on equity, based on achievement of normative plant availability factor mandated by the regulator, which NTPC continues to maintain. For the six months ended September 30, 2018, the coal-based and gas-based plants reported plant availability factors of 85.3% and 89.6%, respectively, well above their respective normative levels.

* Healthy financial risk profile
The gearing is moderate, debt protection metrics comfortable, and liquidity robust. The consolidated gearing increased slightly to 1.26 times as on March 31, 2018 from 1.16 times a year earlier on account of accretion of debt, due to ongoing capacity expansion. Though gearing will increase over the medium term (in line with yearly capital expenditure [capex] plans), it will remain comfortable as the funding mix will remain well within the stipulated norm of 70:30 prescribed by the CERC. Liquidity is robust because of a consolidated cash balance of Rs 4,388 crore as on March 31, 2018. Though liquidity has reduced over the years, due to the ongoing capex, it is likely to remain robust over the medium term.

* Strategic importance to GoI
The government has granted the Maharatna status to NTPC. As a part of its divestment plans, GoI had, in September 2017, divested its shareholding in NTPC, and the current holding is at 61.77% as on September 30, 2018. Nevertheless, GoI remains the majority shareholder. In the past, the government had provided need-based financial support in the form of guarantees for foreign currency borrowings; which is expected to continue. Further NTPC remains strategically important as it accounts for nearly 1/4^th of the power generated in the country.

Weakness
* Weak credit risk profile of customers
The 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 consistently been at 98-100% in the past eight years. This is reflected in low receivable period of about 40 days on an average for the five fiscals through 2018. Furthermore, the recent renewal of the tri-partite agreement between NTPC, state governments, and the central government provides support as it allows the company to recover its dues from defaulting SPUs from Reserve Bank of India's devolution to state governments.