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NTPC
Neutral; NTPC.BO, NATP IN
A longer wait for the execution pick up
• Pace of execution lagging expectation. YTD NTPC standalone has added
~1GW capacity, vs. scaled down target of 3.15GW for FY11. In 11th Plan
(FY08-12), so far NTPC (incl. JVs) has added ~5.79GW. Even if we
assume commissioning of ~6GW projects in FY12, the company is likely to
slip ~47% on its original target of ~22.4GW for the plan period. We model
~65GW of capacity in FY17, vs. company target of 75GW (and our earlier
est. of 70GW). Accounting for slippages and YTD performance, our FY11
and FY12 EPS estimates are down by 7.5% and 6.6% respectively.
• Plant availability improves, but PLF drops. Adjusted PAT of Rs20.5B
was in-line. During 9MFY11 reported PAT of Rs63B is down 5.8% YoY.
Coal and gas plant availability improved to 93.6% (up 340bps YoY) and
95.6% (up 250bps) in Dec-q, hinting to healthy growth in incentives.
However, coal and gas plant PLF declined to 87.2% (down 340bps) and
66.3% (down 730bps), due to lower grid requirements.
• RoE computation method in Mar-q could boost PAT. In FY11 so far,
NTPC has used lower MAT rate (18%) for computation of RoE vs. normal
tax-rate in last fiscal. This has depressed reported PAT by Rs2.5B in Dec-q
and Rs7.23B in 9MFY11. If NTPC reverts to using normal-tax rate in Marq
for the entire fiscal, we could see a write-back of this amount. We have
partially factored this possibility in Mar-q estimates.
• Management call takeaway- impact of distress in SEB finances visible:
According to NTPC, few SEBs are preferring blackouts to buying expensive
power, owing to weak financial health. Due to SEB led back down, NTPC
generation was 6.3% lower in 9MFY11, despite plant availability. NTPC is
more secure as compared to other IPPs- owing to lower cost of generation
(~Rs2/unit in 9MFY11), and regulated return business.
• Maintain N. Revised DCF based Mar-12 PT of Rs215 (Rs225 earlier),
implies ~2.4x FY12 P/B, 5.45% premium to PGCIL (OW). While both
defensives have outperformed Sensex recently, we maintain preference for
PGCIL over NTPC, given superior execution track record, and no fuel risk.
Upside risk: Merchant power sale, downside risk: Hardening of bond rates
Dec-q and 9mFY11 earnings review
NTPC reported PAT of Rs.23.7B in 3Q, flat YoY. Dec-q sales included Rs3.22B on
account of income tax recoverable from beneficiaries. Adjusting for this one-off
income, recurring PAT would be Rs20.5B, exactly in line with our published Dec-q
estimate.
In 9MFY11, realization/kwh is up 14% to Rs.2.42. The fuel cost is up 21.5% YoY to
Rs1.58/kwh. See table 1 below.
In FY11 so far, NTPC has used lower MAT rate (18%) for computation of RoE vs.
normal tax-rate in last fiscal. This has depressed reported PAT by Rs2.5B in Dec-q
and Rs7.23B in 9MFY11. Note that RoE is computed at pre-tax level under the new
CERC norms applicable over FY10-14, the formula includes grossing up 15.5% of
regulated equity by (1-Applicable tax rate (%)).
If NTPC reverts to using normal-tax rate in Mar-q for the entire fiscal, we could see a
write-back of this amount. We have partially factored this possibility in Mar-q
estimates and expect ~32.9% YoY growth in PAT. Thru Mar-q management expects
to commission 1 unit of Sipat (660MW) and 2 units of 500MW. Although its a tough
challenge in our view, given YTD capacity addition of 1GW, we have factored the
increase in estimates, as per guidance.
Please note key operating data for 3Q and 9MFY11 in table 2. The plant availability
has improved, but PLF has dropped. Coal and gas plant availability improved to
93.6% (up 340bps YoY) and 95.6% (up 250bps) in Dec-q, hinting to healthy growth
in incentives. However, coal and gas plant PLF declined to 87.2% (down 340bps)
and 66.3% (down 730bps), due to lower grid requirements. Also note that though gas
available in 3Q was up 2.2%, and availability factor of gas based plants was higher,
but despite this the PLF was lower.
Key conference call takeaways
• According to NTPC, few SEBs are preferring blackouts to buying expensive
power, owing to weak financial health. Due to SEB led back down, NTPC
generation was 6.3% lower in 9MFY11, despite plant availability. NTPC is
more secure as compared to other IPPs in our view- owing to lower cost of
generation (~Rs2/unit in 9MFY11), and regulated return business. The
implication for IPPs with greater exposure to imported coal, gas and
merchant power is negative. Plants with higher cost of generation are going
to be impacted first by grid restrictions, as these projects will come lower in
the merit order dispatch.
• NTPC has applied for 54mmsmd of gas for its pipeline of 9 gas projects
adding to 10.65GW. According to management, most of the pipeline is
brown field expansion where land and clearances are available. However,
the company did not specify how much gas it is confident of securing over
next 2-3 years.
• For projects under construction and recently commissioned projects
management has not yet signed an FSA with CIL. According to NTPC,
domestic coal is more likely to suffice operation at 70-80% PLF only.
• Pakri Barwadih, mine has received stage-II forest clearance. However of the
total 9206acres which needs to be acquired, only 58acres has been acquired.
For the development of all coal mines in pipeline, NTPC needs to acquire
~21000acres of land. NTPC expects to produce 45MMT of coal by 2017
from captive mines. Pakri Barwadih is expected to produce 2.34MTPA by
FY13 and to be ramped up to 15MTPA by FY16. The plans appear quite
challenging given current status, in our view.
Key operating assumptions
YTD NTPC standalone has added ~1GW capacity, vs. scaled down target of
3.15GW for FY11. In 11th Plan (FY08-12), so far NTPC (incl. JVs) has added
~5.79GW. Even if we assume commissioning of ~6GW projects in FY12, the
company is likely to slip ~47% on its original target of ~22.4GW for the plan period.
We model ~65GW of capacity in FY17, vs. company target of 75GW (and our
earlier est. of 70GW). Accounting for slippages and YTD performance, our FY11
and FY12 EPS est. are down by 7.5% and 6.6% respectively.
We factor in decline in PLF to ~78% by FY17 from 88% levels by end of FY10,
given the bleak outlook on guaranteed coal in new FSAs being entered into with CIL.
Also, the outlook on gas availability appears weak. Our FY17 estimate factors in
2.4GW Hydro capacity. Hydro projects have lower PLF and thus contribute to the
overall PLF decline.
Revised PT of Rs215, maintain Neutral
Revised DCF based Mar-12 PT of Rs215 (vs. Mar-11 PT of Rs225 earlier), implies
~2.4x FY12 P/B, 5.45% premium to PGCIL (OW). We use WACC of 10%, terminal
year FY17, and terminal growth rate of 3.5% (unchanged). Our PT factors in Rs8.5
(~US$0.6/MT) for 2.25BMT mineable reserves in NTPC coal mines. We are revising
our price target due to change in estimates.
Both defensives under coverage- NTPC and PGCIL have outperformed Sensex over
last 1month. Between the two we maintain preference for PGCIL (OW). PGCIL has
shown superior execution track record, and fuel risk is absent.
Upside risk for NTPC: Merchant power sale, according to mgmt 150MW will be
available for sale on merchant basis in FY12. Currently we do not factor any
merchant sale in our estimates. Use of normal (or peak-tax rate in the best case) for
RoE computation is also an upside risk to estimates.
Key downside risk: Hardening of bond rates as it impacts WACC for the bond
proxy, continued slippages in execution
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC
Neutral; NTPC.BO, NATP IN
A longer wait for the execution pick up
• Pace of execution lagging expectation. YTD NTPC standalone has added
~1GW capacity, vs. scaled down target of 3.15GW for FY11. In 11th Plan
(FY08-12), so far NTPC (incl. JVs) has added ~5.79GW. Even if we
assume commissioning of ~6GW projects in FY12, the company is likely to
slip ~47% on its original target of ~22.4GW for the plan period. We model
~65GW of capacity in FY17, vs. company target of 75GW (and our earlier
est. of 70GW). Accounting for slippages and YTD performance, our FY11
and FY12 EPS estimates are down by 7.5% and 6.6% respectively.
• Plant availability improves, but PLF drops. Adjusted PAT of Rs20.5B
was in-line. During 9MFY11 reported PAT of Rs63B is down 5.8% YoY.
Coal and gas plant availability improved to 93.6% (up 340bps YoY) and
95.6% (up 250bps) in Dec-q, hinting to healthy growth in incentives.
However, coal and gas plant PLF declined to 87.2% (down 340bps) and
66.3% (down 730bps), due to lower grid requirements.
• RoE computation method in Mar-q could boost PAT. In FY11 so far,
NTPC has used lower MAT rate (18%) for computation of RoE vs. normal
tax-rate in last fiscal. This has depressed reported PAT by Rs2.5B in Dec-q
and Rs7.23B in 9MFY11. If NTPC reverts to using normal-tax rate in Marq
for the entire fiscal, we could see a write-back of this amount. We have
partially factored this possibility in Mar-q estimates.
• Management call takeaway- impact of distress in SEB finances visible:
According to NTPC, few SEBs are preferring blackouts to buying expensive
power, owing to weak financial health. Due to SEB led back down, NTPC
generation was 6.3% lower in 9MFY11, despite plant availability. NTPC is
more secure as compared to other IPPs- owing to lower cost of generation
(~Rs2/unit in 9MFY11), and regulated return business.
• Maintain N. Revised DCF based Mar-12 PT of Rs215 (Rs225 earlier),
implies ~2.4x FY12 P/B, 5.45% premium to PGCIL (OW). While both
defensives have outperformed Sensex recently, we maintain preference for
PGCIL over NTPC, given superior execution track record, and no fuel risk.
Upside risk: Merchant power sale, downside risk: Hardening of bond rates
Dec-q and 9mFY11 earnings review
NTPC reported PAT of Rs.23.7B in 3Q, flat YoY. Dec-q sales included Rs3.22B on
account of income tax recoverable from beneficiaries. Adjusting for this one-off
income, recurring PAT would be Rs20.5B, exactly in line with our published Dec-q
estimate.
In 9MFY11, realization/kwh is up 14% to Rs.2.42. The fuel cost is up 21.5% YoY to
Rs1.58/kwh. See table 1 below.
In FY11 so far, NTPC has used lower MAT rate (18%) for computation of RoE vs.
normal tax-rate in last fiscal. This has depressed reported PAT by Rs2.5B in Dec-q
and Rs7.23B in 9MFY11. Note that RoE is computed at pre-tax level under the new
CERC norms applicable over FY10-14, the formula includes grossing up 15.5% of
regulated equity by (1-Applicable tax rate (%)).
If NTPC reverts to using normal-tax rate in Mar-q for the entire fiscal, we could see a
write-back of this amount. We have partially factored this possibility in Mar-q
estimates and expect ~32.9% YoY growth in PAT. Thru Mar-q management expects
to commission 1 unit of Sipat (660MW) and 2 units of 500MW. Although its a tough
challenge in our view, given YTD capacity addition of 1GW, we have factored the
increase in estimates, as per guidance.
Please note key operating data for 3Q and 9MFY11 in table 2. The plant availability
has improved, but PLF has dropped. Coal and gas plant availability improved to
93.6% (up 340bps YoY) and 95.6% (up 250bps) in Dec-q, hinting to healthy growth
in incentives. However, coal and gas plant PLF declined to 87.2% (down 340bps)
and 66.3% (down 730bps), due to lower grid requirements. Also note that though gas
available in 3Q was up 2.2%, and availability factor of gas based plants was higher,
but despite this the PLF was lower.
Key conference call takeaways
• According to NTPC, few SEBs are preferring blackouts to buying expensive
power, owing to weak financial health. Due to SEB led back down, NTPC
generation was 6.3% lower in 9MFY11, despite plant availability. NTPC is
more secure as compared to other IPPs in our view- owing to lower cost of
generation (~Rs2/unit in 9MFY11), and regulated return business. The
implication for IPPs with greater exposure to imported coal, gas and
merchant power is negative. Plants with higher cost of generation are going
to be impacted first by grid restrictions, as these projects will come lower in
the merit order dispatch.
• NTPC has applied for 54mmsmd of gas for its pipeline of 9 gas projects
adding to 10.65GW. According to management, most of the pipeline is
brown field expansion where land and clearances are available. However,
the company did not specify how much gas it is confident of securing over
next 2-3 years.
• For projects under construction and recently commissioned projects
management has not yet signed an FSA with CIL. According to NTPC,
domestic coal is more likely to suffice operation at 70-80% PLF only.
• Pakri Barwadih, mine has received stage-II forest clearance. However of the
total 9206acres which needs to be acquired, only 58acres has been acquired.
For the development of all coal mines in pipeline, NTPC needs to acquire
~21000acres of land. NTPC expects to produce 45MMT of coal by 2017
from captive mines. Pakri Barwadih is expected to produce 2.34MTPA by
FY13 and to be ramped up to 15MTPA by FY16. The plans appear quite
challenging given current status, in our view.
Key operating assumptions
YTD NTPC standalone has added ~1GW capacity, vs. scaled down target of
3.15GW for FY11. In 11th Plan (FY08-12), so far NTPC (incl. JVs) has added
~5.79GW. Even if we assume commissioning of ~6GW projects in FY12, the
company is likely to slip ~47% on its original target of ~22.4GW for the plan period.
We model ~65GW of capacity in FY17, vs. company target of 75GW (and our
earlier est. of 70GW). Accounting for slippages and YTD performance, our FY11
and FY12 EPS est. are down by 7.5% and 6.6% respectively.
We factor in decline in PLF to ~78% by FY17 from 88% levels by end of FY10,
given the bleak outlook on guaranteed coal in new FSAs being entered into with CIL.
Also, the outlook on gas availability appears weak. Our FY17 estimate factors in
2.4GW Hydro capacity. Hydro projects have lower PLF and thus contribute to the
overall PLF decline.
Revised PT of Rs215, maintain Neutral
Revised DCF based Mar-12 PT of Rs215 (vs. Mar-11 PT of Rs225 earlier), implies
~2.4x FY12 P/B, 5.45% premium to PGCIL (OW). We use WACC of 10%, terminal
year FY17, and terminal growth rate of 3.5% (unchanged). Our PT factors in Rs8.5
(~US$0.6/MT) for 2.25BMT mineable reserves in NTPC coal mines. We are revising
our price target due to change in estimates.
Both defensives under coverage- NTPC and PGCIL have outperformed Sensex over
last 1month. Between the two we maintain preference for PGCIL (OW). PGCIL has
shown superior execution track record, and fuel risk is absent.
Upside risk for NTPC: Merchant power sale, according to mgmt 150MW will be
available for sale on merchant basis in FY12. Currently we do not factor any
merchant sale in our estimates. Use of normal (or peak-tax rate in the best case) for
RoE computation is also an upside risk to estimates.
Key downside risk: Hardening of bond rates as it impacts WACC for the bond
proxy, continued slippages in execution
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