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NTPC - Capex delays & low tax base hit 3Q; EPS Cut
„3Q Rec PAT +3%YoY, Capex cut 29%; EPS Cut 11%; Maintain UPF
We cut our FY11-12E EPS by 10-11% on continued delay in NTPC’s capex led by
its Russian vendors and new super-critical JVs, which shall lower its mid-term
growth. NTPC had weak 3Q with Rec PAT +3%YoY led by lower base power RoE
(15.5%) on grossing-up of tax at MAT rate v/s peak rate (19.3%) in FY10, delay in
capex, 370bps fall in yield on its Rs198bn treasury and higher O&M costs. Maintain
UPF despite 24% stock underperformance in last 1 year on - 1) delay in capex led
by its Russian vendors (31% of capex) & award of bulk tenders impacting PAT/RoE
growth, 2) risk of tax gross-up @MAT in FY12E and 3) expensive valuation - P/BV
at 2.1x FY12E, highest among the Asian regulated Uts. Likely strong 4Q’11 on tax
gross-up at peak rate may provide a good exit point. Maintain PO on roll-forward.
3Q hit by lower RoE, capex delays, plant back-downs & yields
NTPC cut its FY11E capex by 29%. This is on the top of its FY10 parent capex miss
by 43% by value and 70% by MW to start 990MW (3300MW) on its stand-off with its
Russian suppliers at two of its largest projects namely, Sipat I and Barh I totaling to
3.9GW (31% of XI plan add by parent). This delay has begun to impact its secular
growth from 1QFY11. Its 3Q generation at 54.7bu was flat despite start of new
1.48GW (5% add) on 10% fall in gas generation led by lower PLF 66.3% (73.6%).
Rec PAT Rs22.4bn +3%YoY on grossing-up of tax at MAT v/s at peak rate in FY10,
370bps lower yield on its Rs198bn cash chest driving 20%YoY fall in inv. income.
On call mgt. said that poor financials of its customers are restricting them from
drawing power and that impacting NTPC’s efficiencies/PAT.
Secular growth slowed by delay in capex, Underperform
Core arguments – 1) delay in capex and 2) increased competition as India
moves to competitive bidding regime and 3) expensive valuations are negative
catalysts, while a pick-up in power / coal capex and higher than 15.5% RoE on
gross-up of tax @ peak rate would be a positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs200 for NTPC is based on a 5pct discount to our DCF valuation,
which assumes WACC of 10.6pct on lower risk-free rate and a terminal growth
rate of 1.5pct. It is led by higher capacity, utilization rates & efficiency gains on
the back of increased fuel security. Risks to our price objective are - (a) Gas
supply to existing/new plants, (b) Likely end to the negotiated project allocation
window from FY12E. (c) Potential cut in RoE with likely improved demand-supply
gap of power (d) Potential entry into unrelated businesses (boilers) and (e)
Increased competition from the private sector. Upside risks a pick-up in capex
and higher than 15.5% RoE on gross-up of Income tax / coal capex.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC - Capex delays & low tax base hit 3Q; EPS Cut
„3Q Rec PAT +3%YoY, Capex cut 29%; EPS Cut 11%; Maintain UPF
We cut our FY11-12E EPS by 10-11% on continued delay in NTPC’s capex led by
its Russian vendors and new super-critical JVs, which shall lower its mid-term
growth. NTPC had weak 3Q with Rec PAT +3%YoY led by lower base power RoE
(15.5%) on grossing-up of tax at MAT rate v/s peak rate (19.3%) in FY10, delay in
capex, 370bps fall in yield on its Rs198bn treasury and higher O&M costs. Maintain
UPF despite 24% stock underperformance in last 1 year on - 1) delay in capex led
by its Russian vendors (31% of capex) & award of bulk tenders impacting PAT/RoE
growth, 2) risk of tax gross-up @MAT in FY12E and 3) expensive valuation - P/BV
at 2.1x FY12E, highest among the Asian regulated Uts. Likely strong 4Q’11 on tax
gross-up at peak rate may provide a good exit point. Maintain PO on roll-forward.
3Q hit by lower RoE, capex delays, plant back-downs & yields
NTPC cut its FY11E capex by 29%. This is on the top of its FY10 parent capex miss
by 43% by value and 70% by MW to start 990MW (3300MW) on its stand-off with its
Russian suppliers at two of its largest projects namely, Sipat I and Barh I totaling to
3.9GW (31% of XI plan add by parent). This delay has begun to impact its secular
growth from 1QFY11. Its 3Q generation at 54.7bu was flat despite start of new
1.48GW (5% add) on 10% fall in gas generation led by lower PLF 66.3% (73.6%).
Rec PAT Rs22.4bn +3%YoY on grossing-up of tax at MAT v/s at peak rate in FY10,
370bps lower yield on its Rs198bn cash chest driving 20%YoY fall in inv. income.
On call mgt. said that poor financials of its customers are restricting them from
drawing power and that impacting NTPC’s efficiencies/PAT.
Secular growth slowed by delay in capex, Underperform
Core arguments – 1) delay in capex and 2) increased competition as India
moves to competitive bidding regime and 3) expensive valuations are negative
catalysts, while a pick-up in power / coal capex and higher than 15.5% RoE on
gross-up of tax @ peak rate would be a positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs200 for NTPC is based on a 5pct discount to our DCF valuation,
which assumes WACC of 10.6pct on lower risk-free rate and a terminal growth
rate of 1.5pct. It is led by higher capacity, utilization rates & efficiency gains on
the back of increased fuel security. Risks to our price objective are - (a) Gas
supply to existing/new plants, (b) Likely end to the negotiated project allocation
window from FY12E. (c) Potential cut in RoE with likely improved demand-supply
gap of power (d) Potential entry into unrelated businesses (boilers) and (e)
Increased competition from the private sector. Upside risks a pick-up in capex
and higher than 15.5% RoE on gross-up of Income tax / coal capex.
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