Anand Rathi, : Buy NTPC Diminished demand leads to lower generation

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NTPC
Diminished demand leads to lower generation; Buy
NTPC saw flat generation and a lower load factor due to
diminished demand from states, despite higher availability. The
company has signed PPAs of 100GW, thereby assuring RoE and
easing concerns regarding tariff-based bidding.

 Flat profit. While its revenue growth was 20% yoy to Rs134bn, its
adjusted net profit slipped 2% yoy to `23bn. Higher interest
expense, lower ‘other income’ (redemption of bonds and lower
interest rates on surplus cash) and a higher tax rate (RoE grossed
up at the corporate tax rate, unlike MAT in previous quarter)
trimmed the profit growth.
 Operational performance. Generation (54bn units-bu) and
energy sales (51bu) were flat yoy, despite higher capacity (33GW),
on shrinking demand from states. This led to loss of 10bu and a
lower load factor (coal, 87.2% and gas, 66.3%) despite higher
availability (coal, 93.6% and gas, 95.6%).
 PPAs signed for 100GW. The company has signed PPAs (as per
CERC norms) for ~100GW (existing 33GW+under-construction
16GW+in the bidding/planning stage 50GW). The company
maintains its target of commissioning 3GW and 5GW in FY11
and FY12 respectively.
 Valuation. We value NTPC at `234, based on 2.6x FY12e book
value. We value the core business at `196, tax-free bonds at `12
and cash & investments at `26.