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NTPC ----------------------------------------------------------------------------- Maintain OUTPERFORM
Operating results in line; better placed to combat fuel and SEB risk
● NTPC’s 3Q11 recurring PAT at Rs20.1 bn declined 5% YoY.
Operating results were mostly in line with our estimates.
● The company has already commissioned 1.49 GW in FY11 and
expects to further commission 1.66 GW during 4Q FY11. It
expects to commission over 5 GW during FY12.
● As the weak finances of SEBs are impacting their ability to
purchase power, certain projects of NTPC were requested to
operate at lower utilisation (back-down); this affected NTPC’s
generation growth (almost flat YoY at 54.7 bn kWh despite the
commissioning of its new capacities). While NTPC is allowed to
earn the project’s fixed costs and availability-based incentives, a
project back-down affects its ability to earn thermal incentives.
● We cut our target price and earnings over FY11-13E by 4% to
factor in the likely delays in capacity addition. However, while we
expect the structural issues of fuel risk and weak SEB finances to
impact the sector over the next few years, we believe NTPC is
relatively well placed under its regulated business model. We
reiterate our OUTPERFORM rating for NTPC.
Operating performance in line with estimates
NTPC's 3Q11 reported PAT needs to be adjusted for prior period:
(1) sales of Rs1,598 mn, (2) advance against depreciation (AAD) of
Rs151 mn, (3) depreciation write-back of Rs909 mn and (4) forex loss
of Rs357 mn. Also, given that it changed its depreciation policy in
2Q11, for a like-to-like comparison with 3Q10, 3Q11 reported
depreciation needs to be raised by Rs549 mn, while Rs311 mn needs
to be excluded relating to AAD, included in sales. Adjusting for these,
NTPC’s recurring PAT at Rs20.1 bn declined 5% YoY. While its
operating profit was mostly in line with our estimates, recurring PAT
was 6% ahead of our expectations, mainly on higher-than-expected
treasury income on its surplus cash of Rs198 bn as of Dec 2010.
NTPC largely unexposed to competitive bidding
Unlike the regulated business model that NTPC follows, competitive
bidding-based Case I/II business models expose developers to
various risks. In order to protect itself from the vulnerability of the
competitive bidding models, NTPC has already entered into power
purchase agreements for a total of 100 GW capacity (current capacity
33.2 GW), which we expect NTPC to achieve beyond FY20.
NTPC relatively well placed to combat fuel and SEB risk
We see fuel insecurity and weak SEB finances as the structural risks
that are likely to impact the sector over the next few years. As the
weak finances of SEBs are impacting their ability to purchase power,
certain projects of NTPC were requested to operate at lower utilisation
(back-down). This has mainly led to a YoY fall in NTPC’s PLF during
3Q/9M FY11. However, under its regulated business model, NTPC is
protected from this risk to a large extent, given the recovery of its fixed
cost (includes 15.5% assured RoE) and availability-based incentives
are based on the plant availability factor (PAF), which improved YoY.
However, NTPC’s PAF would be impacted in case of its inability to
secure adequate fuel supplies, which is a key risk, given rising
domestic coal deficits. But, with likely production from its coal mines,
strategy to import coal, and fuel supply agreements already signed for
projects commissioned up to Mar 2009, we believe NTPC is relatively
best placed in the sector to combat the fuel supply risk. Fuel price risk
is allowed as a pass-through under its regulated business model.
Cut EPS over FY11-13E and target price by 4%; OUTPERFORM
We cut our target price and earnings over FY11-13E by 4% to factor
in the likely delays in capacity addition. Our revised target price of
Rs211 implies 14% potential upside. We re-iterate our
OUTPERFORM rating for NTPC and view the recent correction as a
buying opportunity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC ----------------------------------------------------------------------------- Maintain OUTPERFORM
Operating results in line; better placed to combat fuel and SEB risk
● NTPC’s 3Q11 recurring PAT at Rs20.1 bn declined 5% YoY.
Operating results were mostly in line with our estimates.
● The company has already commissioned 1.49 GW in FY11 and
expects to further commission 1.66 GW during 4Q FY11. It
expects to commission over 5 GW during FY12.
● As the weak finances of SEBs are impacting their ability to
purchase power, certain projects of NTPC were requested to
operate at lower utilisation (back-down); this affected NTPC’s
generation growth (almost flat YoY at 54.7 bn kWh despite the
commissioning of its new capacities). While NTPC is allowed to
earn the project’s fixed costs and availability-based incentives, a
project back-down affects its ability to earn thermal incentives.
● We cut our target price and earnings over FY11-13E by 4% to
factor in the likely delays in capacity addition. However, while we
expect the structural issues of fuel risk and weak SEB finances to
impact the sector over the next few years, we believe NTPC is
relatively well placed under its regulated business model. We
reiterate our OUTPERFORM rating for NTPC.
Operating performance in line with estimates
NTPC's 3Q11 reported PAT needs to be adjusted for prior period:
(1) sales of Rs1,598 mn, (2) advance against depreciation (AAD) of
Rs151 mn, (3) depreciation write-back of Rs909 mn and (4) forex loss
of Rs357 mn. Also, given that it changed its depreciation policy in
2Q11, for a like-to-like comparison with 3Q10, 3Q11 reported
depreciation needs to be raised by Rs549 mn, while Rs311 mn needs
to be excluded relating to AAD, included in sales. Adjusting for these,
NTPC’s recurring PAT at Rs20.1 bn declined 5% YoY. While its
operating profit was mostly in line with our estimates, recurring PAT
was 6% ahead of our expectations, mainly on higher-than-expected
treasury income on its surplus cash of Rs198 bn as of Dec 2010.
NTPC largely unexposed to competitive bidding
Unlike the regulated business model that NTPC follows, competitive
bidding-based Case I/II business models expose developers to
various risks. In order to protect itself from the vulnerability of the
competitive bidding models, NTPC has already entered into power
purchase agreements for a total of 100 GW capacity (current capacity
33.2 GW), which we expect NTPC to achieve beyond FY20.
NTPC relatively well placed to combat fuel and SEB risk
We see fuel insecurity and weak SEB finances as the structural risks
that are likely to impact the sector over the next few years. As the
weak finances of SEBs are impacting their ability to purchase power,
certain projects of NTPC were requested to operate at lower utilisation
(back-down). This has mainly led to a YoY fall in NTPC’s PLF during
3Q/9M FY11. However, under its regulated business model, NTPC is
protected from this risk to a large extent, given the recovery of its fixed
cost (includes 15.5% assured RoE) and availability-based incentives
are based on the plant availability factor (PAF), which improved YoY.
However, NTPC’s PAF would be impacted in case of its inability to
secure adequate fuel supplies, which is a key risk, given rising
domestic coal deficits. But, with likely production from its coal mines,
strategy to import coal, and fuel supply agreements already signed for
projects commissioned up to Mar 2009, we believe NTPC is relatively
best placed in the sector to combat the fuel supply risk. Fuel price risk
is allowed as a pass-through under its regulated business model.
Cut EPS over FY11-13E and target price by 4%; OUTPERFORM
We cut our target price and earnings over FY11-13E by 4% to factor
in the likely delays in capacity addition. Our revised target price of
Rs211 implies 14% potential upside. We re-iterate our
OUTPERFORM rating for NTPC and view the recent correction as a
buying opportunity.
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