CORPORATE PLAN (2015-2025) Neyveli Lignite Corporation Limited (NLC), a Navaratna enterprise of Government of India (GoI) is an existing, profit making, public sector enterprise engaged in mining of lignite and generation of power through lignite based thermal power plants. NLC was established by GoI in 1956, following the discovery of lignite deposits in Neyveli, Tamil Nadu. NLC comes under administrative control of Ministry of Coal, GoI and serves as an important source of power generation to the states of Tamil Nadu, Andhra Pradesh, Karnataka, Kerala,Telangana,Rajasthan and Union Territory of Puducherry. NLC currently operates four open cast lignite mines of total capacity of 30.6 Million Tonnes per Annum (MTPA) and five thermal power stations with a total installed capacity of 3240 MW. The company, through its subsidiary NTPL, has also recently commissioned a 1000 MW coal based power plant (comprising of 2 Units of 500 MW capacity each), 10 MW solar plant and 30 MW wind power plant thus bringing the total installed capacity of the company to 4280 MW. NLC has lined up a number of projects including expansion/augmentation of its existing mines and power plants, setting up of green-field mines & power plants, acquisition of power assets, acquisition of overseas mine assets, setting up of wind and solar power plants across the country. In order to structure the growth strategy, ICRA Management Consulting Services Ltd (IMaCS)developed a corporate plan for NLC till 2020 incorporating the proposed projects that were envisaged to be carried out. On account of changed timelines with regards to the proposed implementation of some of these new projects and also on account of new projects being proposed, NLC approached SBI Capital Markets Ltd. (SBICAP) for updation of the Corporate Plan prepared by IMaCS. Thereport has been prepared by SBICAP on the basis of IMaCS s report, information provided by the company, discussions with company executives and secondary data from market sources considered reliable. Neyveli Lignite Corporation Ltd 1
FOCUS AREA OF IMaCS REPORT In 2012, IMaCS had prepared a Corporate Plan focusing on the strategies that NLC should adopt over the next ten-year period. The IMaCS report constituted 3 phases namely Phase I, Phase II and Phase III the focus areas of each of which are indicated as below; The Phase I of the report focused on strategic issues faced by NLC in mining, power generation, human resources, project under implementation and finance. The Phase I report also mentioned the relevant practices or strategies in mining and power generation internationally and in India which can be adopted by NLC. The Phase II of the report detailed about the current IT strategies, human resource policies and R&D practices followed by NLC, and suggests the changes required in the existing strategies and new practices that can be implemented by NLC. The Phase III of the report worked out a business plan for NLC, which will have strategic direction, time frame, resource requirements and strategic milestones necessary to be achieved. An implementation plan, which will have timely clearance and approvals, capacity building, project management, strengthening of monitoring and reporting system, etc. has also been suggested. The report prepared by SBICAP presents an updation of the corporate plan prepared by IMaCS, based on the updated capital expenditure plans of the company based on the projects finalized and new projects proposed by NLC. The details with regards to the proposed plans for Geology, HR, IT are based on the discussion with NLC. NLC EXISTING OPERATIONS Mining NLC currently operates four opencast lignite mines with a combined capacity of 30.6 MTPA of which Mine I-10.5 MTPA, Mine IA- 3 MTPA and Mine II - 15 MTPA are in Tamil Nadu. In addition to the above NLC operates a 2.1 MTPA lignite mine to Neyveli Lignite Corporation Ltd 2
supply fuel to its 250 MW Power Station at Barsingsar in Bikaner District, Rajasthan. The details of the existing operational mines are as shown in the table below; Location Mine Area covered (Sq. km) Reserve (MT) Capacity per annum (MT) Commissioning Neyveli, Tamil Nadu I 31.78 365 10.50 May 1962 Neyveli, Tamil Nadu II 42.00 613 15.00 March 1985 Neyveli, Tamil Nadu IA 11.60 120 3.00 March 2003 Barsingsar, Rajasthan Barsi ngsar 9.70 53 2.10 October 2009 TOTAL 1151 30.60 In FY 2014-15,NLC achieved an aggregate lignite production of 26.54MT Power Generation NLC s thermal power stations (the units under TPS-I) are South Asia s first lignite fired and India s first pithead based power station. NLC, from the lignite extracted from its mines, operates five thermal power stations with an aggregate capacity of 3240 MW in the states of TamilNadu and Rajasthan. NLC also operates one coal based thermal power plant of 1000 MW (2*500) capacity through its joint venture with TANGEDCO, NLC Tamilnadu Power Limited. NLC serves as an important source of power supply to TamilNadu, Kerala, Karnataka, Andhra Pradesh, Telangana, Pondicherry and Rajasthan. The details of power plants operated by NLC are as shown in the table below: Power Station Location of plant Capacity(MW) Commissioning TPS I Neyveli, Tamil Nadu 600.00 1962-1970 TPS II Neyveli, Tamil Nadu 1470.00 1986-1993 TPS I Expansion Neyveli, Tamil Nadu 420.00 2002-2003 Barsingsar Thermal Bikaner, Rajasthan 250.00 2010-2011 Power Station TPS II Expansion (Unit- II &Unit-I) Neyveli, Tamil Nadu 500.00 Unit-II-April 2015 & Unit-I- June 2015 NTPL (Unit-I & Unit II) Tuticorin, TamilNadu 1000.00 June 2015 & August 2015 Solar 10.00 Sep 2015 Wind 30.00 2014-2015 and 2015-16, 2016-17 TOTAL 4280.00 Neyveli Lignite Corporation Ltd 3
PROJECTS UNDER IMPLEMENTAION AND FORMULATION Mining The mines proposed in the table below shall be utilized for the proposed lignite based power plants of NLC and to improve the efficiency of existing power plants of NLC. S. No Project Capacity (MTPA) Expected COD (FY) 1 Expansion of Mine IA 4.00 2018 2 Barsingsar Expansion 0.40 2020 3 Bithnok 2.25 2020 4 Hadla mine 1.90 2020 5 Mine III 9.00 2022 TOTAL 17.55 In addition to the above, Mine II Augmentation of 3.75 MTPA is proposed to be completed by FY 2019.NLC has also plans to develop a Mine of 5 MTPA capacity at Jayamkondan, Tamilnadu. Further to the above mentioned mines, NLC has already been allocated the coal blocks in Jilga Barpali in Chhattisgarh (Request has been made to allocate an alternative suitable coal block in lieu of Jilga Barpali owing to adverse geo-mining conditions and deep seated underground deposits) and South Pachwara coal block in Jharkhand to cater to the proposed coal based power plants of NLC in Tamil Nadu and Uttar Pradesh. Alternatively Coal blocks of Talabira II & II, in Odisha were allotted recently. The company is assessing development of these allocated coal blocks to the extent of 31.5 MTPA. Power Generation Apart from lignite and coal based thermal power plants, NLC have also firmed up plans to foray in to renewable energy sector through wind and solar based power plants. The following is the list of power projects proposed to be implemented/being implemented by NLC: (TPS-I 600 MW to be retired in March 2017) Neyveli Lignite Corporation Ltd 4
Project name Type of Fuel Capacity (MW) Expected CoD (FY) TPS I replacement unit-1 Lignite 500 2017 TPS I replacement unit-2 Lignite 500 2018 Barsingsar EXP Lignite 250 2020 Bithnok TPS Lignite 250 2020 TPS-II Second expansion-unit 1 Lignite 500 2022 TPS-II Second expansion- Unit 2 Lignite 500 2022 Total Lignite Based Power Plants 1900 Power asset acquisition Coal 3000 2018 UP Project unit-1 Coal 660 2021 UP Project unit-2 Coal 660 2021 UP Project unit-3 Coal 660 2022 Sirkali TPP Phase I-Unit-1 Coal 660 2022 Sirkali TPP Phase I-Unit-2 Coal 660 2022 Sirkali TPP Phase I-Unit-3 Coal 660 2023 Sirkali-TPP- Phase II-Unit 1 Coal 660 2025 Sirkali-TPP- Phase II-Unit 2 Coal 660 2025 Sirkali-TPP- Phase II-Unit 3 Coal 660 2025 Total Coal Based Power Plants 8940 Wind Project unit-1 Wind 37.5 2016 Wind Project unit-2 Wind 50 2017 Wind Project unit-3 Wind 50 2018 Wind Project unit-4 Wind 50 2019 Wind Project unit-5 Wind 50 2020 Total Wind Power Based Plants 237.50 Solar Project I Solar 2000 2018 Solar Project II Solar 1990 2019 Total Solar Power Based Plants 3990 Total Power Plants Capacity addition 15067.50 The above data including acquisition costs has been assumed as given by the company. With the implementation of above projects, the generation capacity of NLC would increase to 19331 MW in FY 2025 from the existing capacity of 4263.5 MW. (The Wind power commissioned up to July 2016 is 30 MW, totaling the existing capacity to 4280 MW and hence further capacity addition would be 15051 MW) Considering the potential for renewable energy, NLC s Board has given in principle approval for installation of Solar Power Projects to the tune of 3400MW, subject to techno commercial viability, in various states. However, NLC is exploring the possibility of installing about 2000 MW by March 2016 and 2000 MW by February 2017. (As of July 2016, action is initiated for construction of 130 MW each solar plants Neyveli Lignite Corporation Ltd 5
at Neyveli and Rajasthan and 50 MW Solar plant with pumped storage at Andaman and Nicobar islands.) Also it is proposed to set up a 500 MW (1X500 MW), thermal power plant at Jayamkondan, Tamilnadu at an estimated cost of Rs 3045 Cr, with a lignite mine of 5 MTPA capacity at an estimated cost of Rs 1141 Cr (provisional) depending upon land and water allocation by Government of Tamilnadu. With this the total power generation capacity by FY 2025 will be 19831 MW. However, the financial projections presented in this report do not cover the capital expenditure and the related financial projections for the 500 MW plant and the associated mine. KEY ISSUES FACED BY NLC Mining Limited Lignite reserves in Neyveli: Lignite reserves in India are estimated at around 43 billion tons as on April 1, 2014, of which 79.4% occur in the southern State of Tamil Nadu. Other states where lignite deposits are located are Rajasthan, Gujarat, Kerala, Jammu and Kashmir and Union Territory of Pondicherry. Out of the 43 billion tons of lignite, only about 5.18 billion tons are identified as mineable, leaving a large chunk of around 38 billion tons of un-mineable lignite reserves. The current lignite reserves in Neyveli, which is expected to last for next 30-40 years, limits the capacity expansion in future with lignite as fuel in Neyveli. Therefore, there is a need to look at newer resources /alternate resources for fuel as strategic fit to synergise with its existing resources and also to meet its future capacity expansion envisaged. Land acquisition: The expansion plans envisaged by NLC necessitates the acquisition of large tracts of land. Land acquisition for new Greenfield projects and also for the expansion projects of NLC is becoming difficult with legal petitions for enhanced compensation. As of 2012, over 6800 Land Acquisition Original Petition (LAOP) cases were filed against NLC. Evacuation of water from mines: Water management in mines is another critical area due to the proximity of sea Neyveli Lignite Corporation Ltd 6
and Neyveli being located in an area that receives regular monsoon. During the past, there have been instances where flooding has affected the mine production. However on account of proactive measures taken by NLC, like pre monsoon preparation and regular pumping of water, impact on production has been minimized. Power Generation Replacement of aging units at TPS I: Life Extension Programme (LEP) was carried out for all the nine units of TPS-I between 1992 and 1999. The power plant having been in operation over 40 years, is nearing its extended life as well. Heat rate has deteriorated significantly resulting in high specific lignite consumption. The TPS I Expansion project is able to operate at a PLF of 80% in the last five years exceeding their targets whereas, TPS I could operate only at 69% PLF in 2014-15 due to its old age. In order to address the above issue, NLC management has decided to phase out all the units under TPS-I gradually between 2016-2017. Replacement of these units is imperative with higher capacity turbines thereby ensuring better efficiencies with lesser manpower. New thermal power station, Neyveli New Thermal Power Station (NNTPS) of 1000 MW (2x500 MW) capacity is under construction to replace TPS I. STRATEGIES TO BE ADOPTED BY NLC: India's economic growth in the last two decades has led to increased demand for power generation and its allied activities. During the same period, many of the Public Sector Undertakings (PSUs) have seen huge growth to cater to this demand by expanding their capacities as well as capabilities. Diversification has become a strategy for these PSUs to de-risk their existing business and to achieve organizational growth both organically and inorganically. On evaluation of the best practices followed by these PSUs, it is suggested that NLC can adopt some of the strategies including vertical integration and horizontal diversification. A special case of global diversification can also be assessed by NLC. The three forms are explained in detail along with their applicability to NLC. Neyveli Lignite Corporation Ltd 7
Vertical Integration: NLC in all of its operational power projects is vertically integrated at the back end as it operates the lignite mines, which feed the power plants. The presence in both fuel supply of lignite and generation through lignite-based power plants has enabled NLC self-sufficiency in operations and improved cost efficiency for its lignite based power plants. NLC may also assess transmission and distribution activities to complete the value chain of power business. NLC has initiated steps to get allotment of coal blocks in Odisha (Talabira II and Talabira III), and got the allotment recently. NLC may also explore forming Joint Ventures with power plant equipment manufacturers. The same can help in faster implementation of power projects without any delay. Horizontal Diversification: Horizontal diversification ideally represents moving in to a new industry or new product segments. However, here, as NLC is focussed on power sector, it can be a representative of different modes/ fuels like coal-based power, lignite based power, wind farms, solar etc. In recent years, NLC has made a start in setting up wind farms and solar plants. NLC has formed joint ventures with TANGEDCO and UPRVUNL for setting up coal based thermal power plants in Tamil Nadu and Uttar Pradesh respectively. NLC may expand by acquiring industrial units/government undertaking in the power sector that have potential for profits after evaluating the synergies and risks pertaining to the particular industrial unit/undertaking. NLC is now in the process of acquiring 2x600 MW RTPS of DVC through JV mode with DVC. NLC could also look to provide Consultancy services on mine planning, power plant operations and maintenance, residual life assessment, etc. to state run utilities to start with. Global Diversification: Global presence has become one of the criteria to be classified as Maharatna Company. NLC would be required to focus on having global tie ups and operations. Apart from the status of being conferred a Maharatna company, acquisition of coal mines in Indonesia, Australia or South Africa would mitigate fuel supply risk for its Neyveli Lignite Corporation Ltd 8
upcoming coal based power plants. NLC can explore plans to acquire coal assets abroad as part of the geographical diversification strategy. BUSINESS PLAN The updated corporate plan shall provide a roadmap and strategic direction for NLC till 2025. The proposed implementation points for NLC are as discussed below; Capacity augmentation NLC has a healthy project pipeline to attain additional capacities, which is in line with the said objective. NLC can also balance the growth of the power projects through establishment of captive mines both coal and lignite for these power projects by utilizing the experience and capability acquired in the mining sector. The company by establishing captive mines for its proposed power plants shall also be able to maintain cost effectiveness. The company has already acquired /been allotted coal mines to this purpose in South Pachwara and Talabira II & III for two of its 1980 MW coal based power plants. The company has also indicated plans to acquire thermal power projects to the extent of 3000 MW by FY 2018 out of which action is initiated for the acquisition of RTPS Phase I of capacity 1200 MW. Diversified fuel mix As lignite reserves are limited and due to the fact that lignite is deep-seated and would require acquisition of plenty of fertile land leading to R&R issues, NLC can diversify its fuel mix to achieve a balanced portfolio on long-term power generation capacities. To achieve the same, NLC plans to implement coal based power projects and has recently commissioned coal based thermal power plant at Tuticorin through a joint venture with TANGEDCO. Further,NLC has proposed power plants in Ghatampur, Uttar Pradesh and Sirkali, Tamil Nadu that will be utilizing captive coal blocks allocated by GoI for the specific projects. The company also plans to expand the proposed Sirkali Thermal Power Project and is in the process of assessing coal block resources for the same. Neyveli Lignite Corporation Ltd 9
BUSINESS PLAN PROJECTIONS: Based on the proposed capital expenditure plans and taking into consideration the existing projects of NLC, the future financial projections of NLC have been drawn and the summary is as shown in the following table: Neyveli Lignite Corporation Ltd 10
Strictly Private & Confidential Up-dation of Corporate Plan 2015-2025 Rs. Cr Profit & Loss Statement FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 Sales 9857 11336 11842 24352 29418 32316 42793 49884 52606 59293 Total Expenditure 5575 6444 6833 12288 14176 15877 20755 24512 26370 30398 Operating Profit (EBITDA) 4282 4892 5009 12064 15242 16439 22038 25371 26236 28894 Other Income 324 275 176 86 36 31 60 251 630 1151 PBT 3007 3406 2932 6901 7594 7421 11573 14411 16288 19287 PAT 2001 2267 1942 4620 5071 4935 7720 9616 10854 12841 Balance Sheet FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 Liabilities Net Worth 16835 18698 20236 24452 29119 33650 40966 50178 60628 73064 Liabilities 14563 21571 43664 60081 64417 65372 64728 61622 61029 56944 Total Liabilities 31398 40270 63900 84533 93536 99021 105694 111800 121657 130008 Assets Net Fixed Assets 16930 16604 20144 50916 66036 81194 97603 97295 92157 100410 CWIP 9284 19604 40659 30727 24823 14680 1670 1633 10015 391 Other assets 1273 1273 1273 1273 1273 1273 1273 1273 1273 1273 Net Current Assets 3911 2788 1824 1617 1403 1874 5148 11600 18212 27935 Total Assets 31398 40270 63900 84533 93536 99021 105694 111800 121657 130008 Cash Flow Statement FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 A. Cash Flow from Operations 3239 3315 2701 4419 7367 8344 9872 13251 15521 17285 B. Cash Flow from Investments (9,758) (11,091) (25,814) (23,440) (12,555) (8,887) (8,004) (4,811) (8,401) (4,344) C. Cash Flow from Financing 6,566 6,640 22,034 18,114 4,989 624 (1,312) (4,736) (2,414) (6,053) Net increase/decrease 47 (1,135) (1,079) (908) (200) 80 556 3,704 4,705 6,888 Cash at beginning of the year 3,578 3,625 2,490 1,411 503 303 384 940 4,644 9,349 Cash at the end of the year 3,625 2,490 1,411 503 303 384 940 4,644 9,349 16,237 Financial Ratios FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 EBITDA Margin 43% 43% 42% 50% 52% 51% 51% 51% 50% 49% Net Profit Margin (NPM) 20% 20% 16% 19% 17% 15% 18% 19% 20% 21% Debt Equity Ratio 0.76 1.05 2.07 2.38 2.15 1.89 1.53 1.19 0.98 0.75 Current Ratio 2.27 1.82 1.47 1.23 1.16 1.21 1.52 2.22 3.13 4.54 Debt Service Coverage Ratio 3.04 3.12 2.27 1.45 1.55 1.43 1.58 1.74 1.86 1.97 Interest Coverage ratio 6.03 5.71 3.67 3.57 2.74 2.43 2.95 3.34 3.89 4.60 Neyveli Lignite Corporation Ltd Page No. 11
Strictly Private & Confidential Up-dation of Corporate Plan 2015-2025 CONCLUSION SBICAP on studying the corporate plan report prepared by IMaCS, and the market information available, analyzed the business environment and suggested the areas NLC needs to focus in the next 10 years. Based on this business plan, SBICAP prepared the financial projections for the company as a whole till FY 2025. From the above analysis, it can be assessed that the portfolio of power generation would undergo a shift from majorly lignite based to a mix of lignite and coal by FY 2025. This change has brought in a fresh set of requirement as already mentioned elsewhere with regards to development of coal based assets to cater to the new thermal coal based projects. The production capacity of mines owned by NLC is projected to increase from 30.60 MTPA in FY 2015 to 51.9MTPA in FY 2021and the power generation capacity is projected to increase from 4263.5MW as on September 2015 to 19331MW in FY 2025 on account of the proposed addition of projects till FY 2025. Apart from the above, NLC is envisaging to set up a 5 MTPA lignite mine and a 500 MW TPS at Jayamkondan, depending upon the land and water allocation by Government of Tamilnadu. The company has to develop their IT strategies and HR strategies to cater to the aggressive expansion plans as envisaged by the company. The company is expected to diversify its portfolio geographically from lignite based plants in Tamil Nadu to multi state based and multi fuel based. NLC is also projected to add renewable capacities in the form of new projects in wind (251 MW) and solar (4000 MW) sector and acquire a 3000 MW thermal power assets part of the capacity addition exercise. NLC s board has also given in principle approval for installation of Solar Power Projects to the tune of 3400MW, subject to techno commercial viability, in various states. However NLC is exploring the possibility of installing about 2000 MW by March 2016 and 2000 MW by February 2017. The above expansion plans need careful planning in terms of arranging the financial resources to successfully implement them as envisaged. Based on the study carried out by SBICAP with regards to corporate plan of NLC, the following is recommended; Neyveli Lignite Corporation Ltd
Strictly Private & Confidential Up-dation of Corporate Plan 2015-2025 NLC to undertake and complete the coal based and lignite based power projects as envisaged within the targeted time frame to maximize the revenue potential. NLC to undertake development of the allocated coal mines and synchronize production with the coal based power plants to enable cost efficiency. NLC to synchronize the development of mines in Rajasthan and Neyveli in line with the development of power plants in Rajasthan and Neyveli respectively to enable optimum utilization. NLC to improve the efficiency/availability of its mines in Neyveli from its existing efficiency/availability to comfortably meet the lignite requirement of its existing power plants, new proposed power plants, lignite sales to Independent Power Producers and External sales targets. NLC to assess the acquisition and development of coal blocks abroad based on the requirement of its coal based plants in India and the possible cost synergies from the same. NLC to streamline their IT and HR strategies to enable them successfully carry out the proposed expansion plans of the company. NLC to undertake wind and solar power projects to diversify their revenue base as also add renewable capacities to its portfolio. NLC could also exploit the land available after closure of the mines to put up the solar capacities, wherever it is possible. Considering the Projected performance of the company under the assumptions explained and subject to the weakness and threats enumerated in the report, NLC as a company is projected to improve its revenue potential from its existing level. This along with its improved mining and project execution capabilities, NLC can establish itself as one of the premier integrated power generating companies in the country. However, in order to achieve the above, NLC has to plan its financial resources and fund the envisaged projects with optimum debt/equity ratio. Neyveli Lignite Corporation Ltd