NTPC - Key takeaways from annual analyst meet ::JPMorgan

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NTPC Neutral
NTPC.BO, NTPC IN
Key takeaways from annual analyst meet


Timely award of bulk tenders key to avoid slippage in 12th Plan target.
NTPC targets to reach 66.5GW capacity by end-FY17 from 34.8GW
currently (includes 3.4GW JV capacity). The company aims to add ~4.3GW
in balance FY12 and an additional ~9.8GW is under construction.
According to management 660MW/800MW BTG and BOP bulk tenders for
~13.1GW capacity are expected to be concluded before end FY12 (by
~Nov-11). Further delays may result in spillover of target beyond FY17, in
our view.
 Management shares coal requirement and sourcing plan in FY12 and
FY17 (see detailed break-ups inside the report). To achieve 92%
availability of coal based capacity in FY12, management forecasts 14MMT
of imports (equivalent to 23MMT domestic coal or ~14% of total coal
requirement) besides linkages from CIL and SCCL. The situation appears
more challenging in FY17 as 41% of incremental coal requirement
(~47MMT) is slated to be met through captive coal. Management has
factored 12MMT of throughput from 3 mines de-allocated by Ministry of
Coal in their calculation; and is confident of retaining them.
 Back-down led by weak SEB demand pulling down PLFs but
management confident of keeping bottom-line intact. Gas based capacity
(~4GW) had to be backed down and operated at 62% PLF though
availability was 90%. Similar phenomenon was witnessed for coal based
capacity, but to a lesser extent. NTPC being a key govt. owned PSU, and
CIL's largest customer, is relatively better placed in comparison to IPPs for
securing domestic coal. In any case, tie of entire medium term capacity in
assured return RoE model affords safety to bottom-line projections provided
execution remains on track.
 NTPC has marginally underperformed Sensex YTD and by 12% over
last 12months. We maintain our Neutral view and Mar-12 DCF PT of
Rs200. We continue to prefer PGCIL (OW) over NTPC in among regulated
return defensives, given the former’s relatively superior execution track
record and absence of fuel risk. Key upside risk to estimates: RoE gross-up
at PBT level is carried out at peak-tax rate and P&L tax is booked at MAT.
Key downside risk- delay in bulk tender awards, slippage in FY12 target.