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NTPC Ltd.
1Q tax point to capex slippage;
Quality poor
Tax recovery at peak rate uplift PAT despite generation -2%; UPF
NTPC 1QFY12 Rec PAT grew 8%YoY on charging clients tax at peak rate v/s
paying tax at MAT rate v/s that being done at MAT rate last year 1Q, without
which, it would have shown a decline in PAT in-line with generation (-2%YoY).
Tax gross-up at peak rate in 1Q, indicate NTPC expects to miss its FY12 capex
target. We raise FY12E EPS by 6% to factor-in tax gross-up at peak-rate v/s MAT
rate, in-line with guidance. NTPC generation fell 2%YoY as its clients asked it to
back-down its expensive gas stations. We reiterate our non-consensus U/P rating,
despite 13% underperformance in last 1 year based on slowing growth and one of
the most expensive regulated utility valuations of 2.1x P/BV.
1Q12 Rec PAT +8%YoY on +28% other operating / treasury income
NTPC 1QFY12 Rec PAT +8%YoY on tax gross-up at peak rate and 28%YoY
higher other operating / treasury income. Gross generation fell by 2% due to backdown
by clients and higher plant outages. Coal based generation grew by 1%
YoY only despite 8% YoY higher capacity on fall in generation at eight out of its
15 coal stations e.g. Singrauli -15.7%, Unchahar -12.6%, Farakka -8.2%,
Ramagundem -6.3%, Sipat -4.6%YoY. Its gas based generation fell 22% YoY as
clients shifted to cheaper fuels to cut costs. Sales grew by 12% YoY on 14% YoY
higher fuel cost (Rs1.79/kWh vs Rs1.56/kWh) and 47% higher tax.
Secular growth slowed by delay in capex, Underperform
Negative catalysts are: 1) delay in capex - missed its FY11 capex target by 43%
on execution delays by its Russian vendors and delay in ordering of bulk tender
due to cases filed by non-BHEL vendors, impacting its 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 2.1x
FY12E, highest among the reg. Asian utilities. Pick-up in power / coal capex and
higher than 15.5% RoE on gross-up of tax @ peak rate are positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs192 for NTPC is based on DCF valuation which assumes WACC of
10.4pct on a lower risk-free rate and a terminal growth rate of 1pct. 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.
1Q tax point to capex slippage;
Quality poor
Tax recovery at peak rate uplift PAT despite generation -2%; UPF
NTPC 1QFY12 Rec PAT grew 8%YoY on charging clients tax at peak rate v/s
paying tax at MAT rate v/s that being done at MAT rate last year 1Q, without
which, it would have shown a decline in PAT in-line with generation (-2%YoY).
Tax gross-up at peak rate in 1Q, indicate NTPC expects to miss its FY12 capex
target. We raise FY12E EPS by 6% to factor-in tax gross-up at peak-rate v/s MAT
rate, in-line with guidance. NTPC generation fell 2%YoY as its clients asked it to
back-down its expensive gas stations. We reiterate our non-consensus U/P rating,
despite 13% underperformance in last 1 year based on slowing growth and one of
the most expensive regulated utility valuations of 2.1x P/BV.
1Q12 Rec PAT +8%YoY on +28% other operating / treasury income
NTPC 1QFY12 Rec PAT +8%YoY on tax gross-up at peak rate and 28%YoY
higher other operating / treasury income. Gross generation fell by 2% due to backdown
by clients and higher plant outages. Coal based generation grew by 1%
YoY only despite 8% YoY higher capacity on fall in generation at eight out of its
15 coal stations e.g. Singrauli -15.7%, Unchahar -12.6%, Farakka -8.2%,
Ramagundem -6.3%, Sipat -4.6%YoY. Its gas based generation fell 22% YoY as
clients shifted to cheaper fuels to cut costs. Sales grew by 12% YoY on 14% YoY
higher fuel cost (Rs1.79/kWh vs Rs1.56/kWh) and 47% higher tax.
Secular growth slowed by delay in capex, Underperform
Negative catalysts are: 1) delay in capex - missed its FY11 capex target by 43%
on execution delays by its Russian vendors and delay in ordering of bulk tender
due to cases filed by non-BHEL vendors, impacting its 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 2.1x
FY12E, highest among the reg. Asian utilities. Pick-up in power / coal capex and
higher than 15.5% RoE on gross-up of tax @ peak rate are positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs192 for NTPC is based on DCF valuation which assumes WACC of
10.4pct on a lower risk-free rate and a terminal growth rate of 1pct. 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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