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NTPC Ltd.
First flat EPS since IPO on capex delays; Cut EPS
„Flat FY11 PAT on Capex miss by 43% & back-down by clients; UPF
Led by execution delays by its Russian vendors and delay in ordering of bulk tender
due to cases filed by non-BHEL vendors, NTPC missed its FY11 capex target by 43%
and that in MW by 37% at 2GW. This coupled with loss of 32bu (15% of generation) as
its clients asked it to back-down, flattened NTPC’s FY11 reported PAT at Rs88.3bn.
The flat PAT is after ~Rs10bn (11% of PAT) tax bounty on grossing-up of tax at peak
rate in 4Q vs MAT rate during 9MFY11, otherwise PAT could have declined. We cut
our FY12E EPS by 5% on continued capex delayed but maintain PO on 10% higher
capacity by FY18E and roll-forward. Reiterate our non-consensus Underperform rating
despite 18% underperformance in last 1 year.
Missed targets - Capex Rs224bn -43%, Capacity add 2GW -37%
NTPC FY11 parent capex at Rs128bn was 43% below its planned capex of Rs224bn.
Further, it added 2GW of installed capacity during FY11 which is 37% below its
planned capacity addition of 3.2GW, mainly on its stand-off with its Russian suppliers
at two of its largest projects namely, Sipat I and Barh I totaling to 3.96GW (58% of XI
plan add by parent) and cancellation of its Loharinag Pala hydro project due to
agitation by environmentalists. Gross generation was flat 220bu while Gross revenue
at Rs563.3bn +14.4%YoY. Installed capacity (parent) at 30.8GW was +7%YoY. NTPC
has planned Rs264bn +106%YoY of parent capex and 2.3GW +17%YoY of capacity
addition during FY12, which may come-through only if its Russian vendors improves
delivery and NTPC places both bulk orders by 1HFY12.
Secular growth slowed by delay in capex, Underperform
Core arguments: 1) delay in capex impacting PAT/RoE growth, 2) risk of tax gross-up
@ MAT in FY12E impacting EPS growth, 3) increased competition as India moves to
competitive bidding regime and 4) rich valuation - P/BV at 2.2x FY12E, highest among
the reg. Asian utilities 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 DCF valuation, which assumes WACC of
10.4pct on lower risk-free rate and a terminal growth rate of 1.3pct. 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 Ltd.
First flat EPS since IPO on capex delays; Cut EPS
„Flat FY11 PAT on Capex miss by 43% & back-down by clients; UPF
Led by execution delays by its Russian vendors and delay in ordering of bulk tender
due to cases filed by non-BHEL vendors, NTPC missed its FY11 capex target by 43%
and that in MW by 37% at 2GW. This coupled with loss of 32bu (15% of generation) as
its clients asked it to back-down, flattened NTPC’s FY11 reported PAT at Rs88.3bn.
The flat PAT is after ~Rs10bn (11% of PAT) tax bounty on grossing-up of tax at peak
rate in 4Q vs MAT rate during 9MFY11, otherwise PAT could have declined. We cut
our FY12E EPS by 5% on continued capex delayed but maintain PO on 10% higher
capacity by FY18E and roll-forward. Reiterate our non-consensus Underperform rating
despite 18% underperformance in last 1 year.
Missed targets - Capex Rs224bn -43%, Capacity add 2GW -37%
NTPC FY11 parent capex at Rs128bn was 43% below its planned capex of Rs224bn.
Further, it added 2GW of installed capacity during FY11 which is 37% below its
planned capacity addition of 3.2GW, mainly on its stand-off with its Russian suppliers
at two of its largest projects namely, Sipat I and Barh I totaling to 3.96GW (58% of XI
plan add by parent) and cancellation of its Loharinag Pala hydro project due to
agitation by environmentalists. Gross generation was flat 220bu while Gross revenue
at Rs563.3bn +14.4%YoY. Installed capacity (parent) at 30.8GW was +7%YoY. NTPC
has planned Rs264bn +106%YoY of parent capex and 2.3GW +17%YoY of capacity
addition during FY12, which may come-through only if its Russian vendors improves
delivery and NTPC places both bulk orders by 1HFY12.
Secular growth slowed by delay in capex, Underperform
Core arguments: 1) delay in capex impacting PAT/RoE growth, 2) risk of tax gross-up
@ MAT in FY12E impacting EPS growth, 3) increased competition as India moves to
competitive bidding regime and 4) rich valuation - P/BV at 2.2x FY12E, highest among
the reg. Asian utilities 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 DCF valuation, which assumes WACC of
10.4pct on lower risk-free rate and a terminal growth rate of 1.3pct. 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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