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NTPC (NTPC.BO)
Neutral Equity Research
Korba declared COD, but not to benefit from merchant sale; Neutral
What's changed
NTPC declared a commercial operation date (COD) of 500 MW Unit #7 of
Korba and commissioned 500 MW Unit#6 of Farakka during this week
taking the total installed capacity to 33,694 MW. The capacity addition so
far for FY11 is 1.5GW vs its target of 4.2GW for FY11E. Further, NPTC has
synchronized the 660MW Unit 1 of Sipat I and it could be declared
commercially operational over the next few weeks.
Implications
While timelines of commissioning of Korba and Farakka are in line with
our estimates, we expected NTPC to earn over and above the regulated
return for these capacities as a portion of the capacity is to be sold on
merchant mechanism. Management initially guided that they will sell at
least 65% of the output from these units on merchant mechanism, but the
Ministry of Power allowed NTPC to sell only 15% of the capacity under
merchant mechanism. However, NTPC has now entered into a 2 year PPA
to sell even the 15% output (75MW) from Korba also at regulated tariffs,
which implies that NTPC will not benefit from near term strength in
merchant rates. NTPC has yet to decide on the 15% output from Farakka.
Accordingly, we have now reduced our earnings estimates by 1%/7%/5%
for FY11E/12E/13E as we have removed the favorable impact of higher
margin from our earnings estimates for Korba. Assuming the short term
rate for FY12E to be Rs4/kwh and variable cost of Rs1.5/kwh, we believe
the benefit to NTPC at PBT would have been Rs2.5/kwh (versus Rs35-
40paisa under regulated mechanism)
Valuation
We maintain our Neutral rating. On lower EPS, we cut our 12-m DCF-based
TP of Rs 200 (prior 202), with potential upside of 15%. The stock is trading
in line with its 5-year historical average on FY12E P/E and P/B.
Key risks
Upside/downside: Commissioning of capacities earlier or further delays.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Cautious
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC (NTPC.BO)
Neutral Equity Research
Korba declared COD, but not to benefit from merchant sale; Neutral
What's changed
NTPC declared a commercial operation date (COD) of 500 MW Unit #7 of
Korba and commissioned 500 MW Unit#6 of Farakka during this week
taking the total installed capacity to 33,694 MW. The capacity addition so
far for FY11 is 1.5GW vs its target of 4.2GW for FY11E. Further, NPTC has
synchronized the 660MW Unit 1 of Sipat I and it could be declared
commercially operational over the next few weeks.
Implications
While timelines of commissioning of Korba and Farakka are in line with
our estimates, we expected NTPC to earn over and above the regulated
return for these capacities as a portion of the capacity is to be sold on
merchant mechanism. Management initially guided that they will sell at
least 65% of the output from these units on merchant mechanism, but the
merchant mechanism. However, NTPC has now entered into a 2 year PPA
to sell even the 15% output (75MW) from Korba also at regulated tariffs,
which implies that NTPC will not benefit from near term strength in
merchant rates. NTPC has yet to decide on the 15% output from Farakka.
Accordingly, we have now reduced our earnings estimates by 1%/7%/5%
for FY11E/12E/13E as we have removed the favorable impact of higher
margin from our earnings estimates for Korba. Assuming the short term
rate for FY12E to be Rs4/kwh and variable cost of Rs1.5/kwh, we believe
the benefit to NTPC at PBT would have been Rs2.5/kwh (versus Rs35-
40paisa under regulated mechanism)
Valuation
We maintain our Neutral rating. On lower EPS, we cut our 12-m DCF-based
TP of Rs 200 (prior 202), with potential upside of 15%. The stock is trading
in line with its 5-year historical average on FY12E P/E and P/B.
Key risks
Upside/downside: Commissioning of capacities earlier or further delays.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Cautious
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