Emkay: NTPC - Results hinting at change in grossing up again

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NTPC

Results hinting at change in grossing up again

HOLD

CMP: Rs 188                                       Target Price: Rs 190

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n     APAT of Rs23.2bn (prior year sales not adj.) is higher than est. of Rs20.6bn - we see change in grossing up again to full tax rate led by 25.6% tax rate in the qtr (project delays)

n     Detailed analysis of Q310 & Q311 numbers indicate that Q311 APAT should have been lower byRs5.7bn, had NTPC followed MAT rate grossing up but actually its lower by only Rs450mn  

n     Though this might increase our FY11E earnings by ~10% but we believe that NTPC in all probabilities is likely to fall under MAT rate in FY12E - thus no change in FY12E earnings

n     Valuations at 2.2xFY12E Book value, reasonable on core ROE of 25%; to review earnings post the concall tomorrow; Maintain Hold

APAT higher than estimates; hinting at change in grossing up to full tax

NTPC’s PAT of Rs23.7bn (flat yoy), is significantly higher than expectations of

Rs20.6bn. After adjusting for one time items (depreciation write back, AAD and

provisions), APAT stood at Rs23.2bn (down 2% yoy). We have not adjusted prior period

sales in the above APAT numbers. As per our analysis, the APAT in Q311 should have

been lower by Rs5.7bn (refer to the table on page 2) compared with Q310. However,

the profits are higher - the most likely reason for the same we believe could be change

in grossing up again to full tax rate (retrospectively). Just to recollect, NTPC had

changed the grossing up to MAT rate from earlier full tax rate starting Q1FY11 – in

anticipation of MAT rate applicability in FY11E. This was based on its assessment of

project completions. We believe that the company is running short of its target on

project commissioning which might result in NTPC falling under full tax in FY11E.

Though this might increase our FY11E earnings by ~10% but we believe that NTPC in

all probabilities is likely to fall under MAT rate in FY12E - thus no change in FY12E

earnings likely.