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NTPC (NTPC)
Utilities
Earnings growth remains wanting of execution. We continue to maintain our
cautious stance on NTPC, as slippages in capex and capacity addition suggest modest
earning growth over the next two years. In our view, at 1.8X FY2013E book value and
14X FY2013E EPS (against historical band of 1.8-2.5X P/B and 14-18X P/E) NTPC is fairly
valued and we see limited upside from current levels. We maintain our REDUCE rating
with a revised target price of Rs180 (previously Rs200).
Valuations less demanding, though earning growth continues to remain modest
We maintain our REDUCE rating on NTPC despite the stock correcting by 17% over the past 12
months. NTPC is currently trading at 1.8X FY2013E book value and 14X FY2013E EPS which is at
the lower end of the historical band for NTPC (see Exhibits 1 and 2), though earnings growth for
FY2012E and FY2013E remains modest at 1% and 7%, respectively. We highlight that NTPC has
disappointed with a 6% CAGR in earnings over the past four years, leading to a continued derating
of the trading multiples. We note that the recent underperformance is further reflective of
the overall concerns on project execution and fuel security.
Project execution remains disappointing, slippages and delays likely to continue
We continue to be disappointed by NTPC’s sluggish pace of project execution and capacity
addition. As we have been highlighting, NTPC continues to significantly miss on its capex guidance
with FY2011 capex of Rs123 bn (at standalone level) falling significantly short of the original
guidance of Rs223 bn. We note that NTPC has commissioned just one unit at Sipat (660 MW) in
FY2012, while both Simhadri and Jhajjar units which were slated to commission in 1QFY12, have
slipped further. NTPC has guided for a capacity addition of 4,320 MW in FY2012E though we
remain skeptical and accordingly factor a capacity addition of 2,820 MW (installed) in FY2012E.
Limited upside from current levels, maintain REDUCE
We maintain our REDUCE rating on NTPC with a revised target price of Rs180/share (previously
Rs200/share) as we adjust for commissioning delays. In our view, at 1.8X FY2013E book value and
14X FY2013E EPS (against historical band of 2-2.5X P/B and 14-18X P/E) NTPC is fairly valued and
we see limited upside from current levels.
NTPC’s earnings growth is contingent upon commissioning of new capacities and heightened
earnings risk coupled with overall macro concerns on fuel availibility and financial health of SEBs
will likely keep stock performance muted in the near term. We have revised our earning estimates
to Rs11.2/share for FY2012E (previously Rs11.9/share) and Rs12/share for FY2013E (previously
Rs12.7/share) factoring further delays in commissioning of capacities.
Cancellation of coal blocks could potentially derail fuel security plans
Recent decision by Ministry of Coal (MoC) to cancel five captive blocks allocated to NTPC
could derail NTPC’s fuel security plans. NTPC plans to attain a peak production of 47 mtpa
by FY2017E from its captive blocks (~20% of its total coal requirement in FY2017E) and the
cancellation of five out of eight blocks comes as a further setback to NTPC’s fuel security.
While sale of power on a cost-plus basis mitigates the fuel-pricing risk for NTPC, absence of
captive blocks increases the fuel-availibility risk which might force NTPC to resort to higher
imports or compromise on utilization levels due to Coal India’s inability to ramp up
production to meet requirements of coal-based generation. We, however, note that
management has expressed confidence in a potential reconsideration by MoC on account of
project activity being already undertaken at these blocks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC (NTPC)
Utilities
Earnings growth remains wanting of execution. We continue to maintain our
cautious stance on NTPC, as slippages in capex and capacity addition suggest modest
earning growth over the next two years. In our view, at 1.8X FY2013E book value and
14X FY2013E EPS (against historical band of 1.8-2.5X P/B and 14-18X P/E) NTPC is fairly
valued and we see limited upside from current levels. We maintain our REDUCE rating
with a revised target price of Rs180 (previously Rs200).
Valuations less demanding, though earning growth continues to remain modest
We maintain our REDUCE rating on NTPC despite the stock correcting by 17% over the past 12
months. NTPC is currently trading at 1.8X FY2013E book value and 14X FY2013E EPS which is at
the lower end of the historical band for NTPC (see Exhibits 1 and 2), though earnings growth for
FY2012E and FY2013E remains modest at 1% and 7%, respectively. We highlight that NTPC has
disappointed with a 6% CAGR in earnings over the past four years, leading to a continued derating
of the trading multiples. We note that the recent underperformance is further reflective of
the overall concerns on project execution and fuel security.
Project execution remains disappointing, slippages and delays likely to continue
We continue to be disappointed by NTPC’s sluggish pace of project execution and capacity
addition. As we have been highlighting, NTPC continues to significantly miss on its capex guidance
with FY2011 capex of Rs123 bn (at standalone level) falling significantly short of the original
guidance of Rs223 bn. We note that NTPC has commissioned just one unit at Sipat (660 MW) in
FY2012, while both Simhadri and Jhajjar units which were slated to commission in 1QFY12, have
slipped further. NTPC has guided for a capacity addition of 4,320 MW in FY2012E though we
remain skeptical and accordingly factor a capacity addition of 2,820 MW (installed) in FY2012E.
Limited upside from current levels, maintain REDUCE
We maintain our REDUCE rating on NTPC with a revised target price of Rs180/share (previously
Rs200/share) as we adjust for commissioning delays. In our view, at 1.8X FY2013E book value and
14X FY2013E EPS (against historical band of 2-2.5X P/B and 14-18X P/E) NTPC is fairly valued and
we see limited upside from current levels.
NTPC’s earnings growth is contingent upon commissioning of new capacities and heightened
earnings risk coupled with overall macro concerns on fuel availibility and financial health of SEBs
will likely keep stock performance muted in the near term. We have revised our earning estimates
to Rs11.2/share for FY2012E (previously Rs11.9/share) and Rs12/share for FY2013E (previously
Rs12.7/share) factoring further delays in commissioning of capacities.
Cancellation of coal blocks could potentially derail fuel security plans
Recent decision by Ministry of Coal (MoC) to cancel five captive blocks allocated to NTPC
could derail NTPC’s fuel security plans. NTPC plans to attain a peak production of 47 mtpa
by FY2017E from its captive blocks (~20% of its total coal requirement in FY2017E) and the
cancellation of five out of eight blocks comes as a further setback to NTPC’s fuel security.
While sale of power on a cost-plus basis mitigates the fuel-pricing risk for NTPC, absence of
captive blocks increases the fuel-availibility risk which might force NTPC to resort to higher
imports or compromise on utilization levels due to Coal India’s inability to ramp up
production to meet requirements of coal-based generation. We, however, note that
management has expressed confidence in a potential reconsideration by MoC on account of
project activity being already undertaken at these blocks.
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