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NTPC (NATP)
Utilities
3QFY11—More of the same. NTPC’s reported net income of Rs23 bn for 3QFY11,
like previous periods includes several prior period sales and other write-backs.
Operational performance remains muted—generation growth of 4% yoy and
incremental capacity addition of 1,490 MW in 9MFY11 against a target of 4,150 MW
for FY2011E. We downgrade our recommendation to REDUCE noting limited upside to
our target price of Rs195/share relative to the broader markets.
Reported income boosted by prior period sales, operational performance muted
NTPC reported revenues of Rs134.2 bn (20% yoy, 3% qoq), operating profit of Rs37.6 bn (12%
yoy, 115% qoq) and net income of Rs23.7 bn (0.1% yoy, 13.7% qoq) against our estimate of
Rs131.8 bn, Rs29.7 bn and Rs18.9 bn, respectively. We note that reported numbers were distorted
by prior period sales (discussed in greater detail subsequently). Adjusting for prior period items, net
sales at Rs129 bn were lower than our estimates primarily on account of lower-than-estimated fuel
cost (Rs1.52/kwh against our estimate of Rs1.65/kwh). Estimated gross generation for 3QFY11
was 54.7 BU (+4% yoy) implies an average tariff of Rs2.5/kwh and average fuel cost of
Rs1.52/kwh. A sharp sequential increase in operating profit is primarily due provisioning of Rs12.6
bn in 2QFY11.
1,490 MW commissioned out of targeted 4,150 MW
NTPC announced commissioning of unit 7 of Korba Super Thermal Power Station (500 MW) in
December 2010. We note that with the commissioning of Korba, total commissioned capacity for
9MFY2011 goes up to 1,490 MW. However, we believe that NTPC would still fall short of its
capacity addition target of 4,150 MW in FY2011E. In our view, NTPC will likely add 2000-2500
MW in FY2011E.We also highlight that for projects to be commissioned beyond FY2011, NTPC is
lagging in the amount of capex incurred till date. Exhibit 3 highlights the status of NTPC’s under
construction.
Downgrade to REDUCE noting limited upside
We downgrade NTPC as we see limited potential upside from current levels and retain our target
price of Rs195/share. We note that the stock has out performed BSE Sensex by ~12% since we
upgraded NTPC to ADD on November 23, 2010. In our view, at 2.1X FY2012E book value and
16X FY2012E EPS, NTPC is fairly valued and we see limited potential upside from current levels.
NTPC’s earnings growth is contingent upon commissioning of new capacities and given the
continued slippages in execution (likely to add just 60% of its FY2011E target), we believe that
accentuated risk to earnings growth will likely constrain stock performance in the near term.
Analysis of 3QFY11 results
We discuss below some key highlights of 3QFY11 results
�� Sales of Rs134.2 bn include (1) Rs1.6 bn mn of prior period sales and (2) Rs3.5 bn of
income tax and deferred tax recoverable from customers.
�� NTPC retrospectively changed its depreciation policy (with effect from April 2009)
aligning it with CERC notified depreciation rates as directed by the Office of the
Comptroller and Auditor General. Deprecation for 3QFY11 was lower by Rs549 mn on
account of the change (Rs1.1 bn in 2QFY11).
�� Change in deprecation policy also resulted in write back of prior period depreciation
amounting to Rs909 mn (Rs10.2 bn in 2QFY11) and AAD amounting to –Rs151.4 mn
(Rs7.4 bn in 2QFY11) recognised as prior period sales during 3QFY11.
�� Interest cost includes Rs351 mn of adjustments made for foreign exchange variation.
�� Estimated gross generation for 2QFY11 was 54.7 BU, a sequential increase of 5%
primarily driven by a full quarter of operational of 490 MW at Dadri and 3QFY11
being a seasonally better quarter than 2QFY11
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC (NATP)
Utilities
3QFY11—More of the same. NTPC’s reported net income of Rs23 bn for 3QFY11,
like previous periods includes several prior period sales and other write-backs.
Operational performance remains muted—generation growth of 4% yoy and
incremental capacity addition of 1,490 MW in 9MFY11 against a target of 4,150 MW
for FY2011E. We downgrade our recommendation to REDUCE noting limited upside to
our target price of Rs195/share relative to the broader markets.
Reported income boosted by prior period sales, operational performance muted
NTPC reported revenues of Rs134.2 bn (20% yoy, 3% qoq), operating profit of Rs37.6 bn (12%
yoy, 115% qoq) and net income of Rs23.7 bn (0.1% yoy, 13.7% qoq) against our estimate of
Rs131.8 bn, Rs29.7 bn and Rs18.9 bn, respectively. We note that reported numbers were distorted
by prior period sales (discussed in greater detail subsequently). Adjusting for prior period items, net
sales at Rs129 bn were lower than our estimates primarily on account of lower-than-estimated fuel
cost (Rs1.52/kwh against our estimate of Rs1.65/kwh). Estimated gross generation for 3QFY11
was 54.7 BU (+4% yoy) implies an average tariff of Rs2.5/kwh and average fuel cost of
Rs1.52/kwh. A sharp sequential increase in operating profit is primarily due provisioning of Rs12.6
bn in 2QFY11.
1,490 MW commissioned out of targeted 4,150 MW
NTPC announced commissioning of unit 7 of Korba Super Thermal Power Station (500 MW) in
December 2010. We note that with the commissioning of Korba, total commissioned capacity for
9MFY2011 goes up to 1,490 MW. However, we believe that NTPC would still fall short of its
capacity addition target of 4,150 MW in FY2011E. In our view, NTPC will likely add 2000-2500
MW in FY2011E.We also highlight that for projects to be commissioned beyond FY2011, NTPC is
lagging in the amount of capex incurred till date. Exhibit 3 highlights the status of NTPC’s under
construction.
Downgrade to REDUCE noting limited upside
We downgrade NTPC as we see limited potential upside from current levels and retain our target
price of Rs195/share. We note that the stock has out performed BSE Sensex by ~12% since we
upgraded NTPC to ADD on November 23, 2010. In our view, at 2.1X FY2012E book value and
16X FY2012E EPS, NTPC is fairly valued and we see limited potential upside from current levels.
NTPC’s earnings growth is contingent upon commissioning of new capacities and given the
continued slippages in execution (likely to add just 60% of its FY2011E target), we believe that
accentuated risk to earnings growth will likely constrain stock performance in the near term.
Analysis of 3QFY11 results
We discuss below some key highlights of 3QFY11 results
�� Sales of Rs134.2 bn include (1) Rs1.6 bn mn of prior period sales and (2) Rs3.5 bn of
income tax and deferred tax recoverable from customers.
�� NTPC retrospectively changed its depreciation policy (with effect from April 2009)
aligning it with CERC notified depreciation rates as directed by the Office of the
Comptroller and Auditor General. Deprecation for 3QFY11 was lower by Rs549 mn on
account of the change (Rs1.1 bn in 2QFY11).
�� Change in deprecation policy also resulted in write back of prior period depreciation
amounting to Rs909 mn (Rs10.2 bn in 2QFY11) and AAD amounting to –Rs151.4 mn
(Rs7.4 bn in 2QFY11) recognised as prior period sales during 3QFY11.
�� Interest cost includes Rs351 mn of adjustments made for foreign exchange variation.
�� Estimated gross generation for 2QFY11 was 54.7 BU, a sequential increase of 5%
primarily driven by a full quarter of operational of 490 MW at Dadri and 3QFY11
being a seasonally better quarter than 2QFY11
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