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Earnings downgrade
Following our recent power sector meetings in Delhi we are cutting
NTPC’s capacity addition estimates for FY12-13 and lowering our
earnings by 1-5%. We have also cut NTPC’s long term capacity addition
from 4GW per annum to 3-3.5GW given the coal shortages and other
constraints. This brings down our target price from Rs210 to Rs195 and
our reco from BUY to O-PF. We believe NTPC will be the power generator
least impacted by coal shortages in the country as it can pass through
higher cost of imported coal to customers and most of its returns and
incentives are linked to availability of power plants instead of generation.
However, NTPC’s growth rate will be impacted by the coal shortages.
Capacity addition continues to suffer; earnings cut
At the beginning of the 11th plan our capacity addition targets for NTPC were
c.60% of NTPC’s own target which we later cut to 45%. It looks likely now
that NTPC will achieve only 40% of the initial target i.e. 8.8GW or 1.8GW per
annum. Given that c.15GW of capacity is already under construction and
another 10GW is likely to be awarded this year, the capacity addition score
should be much better for the 12th plan. However, looking at the setbacks
faced in the recent years, we are taking a conservative view and building in
only 3-3.5GW per annum capacity addition post FY12. We are cutting FY12
EPS by 1% and FY13 EPS by 5% primarily on account of lower capacity.
Utilisation likely to be affected…but little impact on earnings
NTPC’s power capacity utilisation in Apr-Sep 2011 is down by 3.5ppt YoY due
to exceptionally strong hydro and nuclear power generation (which lowered
the demand for thermal power), backing down by state utilities and coal
shortages at some stations. Availability of power plants however is most
important for NTPC as over 80% of its profits are linked to it. The profits
linked to actual generation will decline proportionately with level of
generation. Hence the impact of lower generation on profits (unless lower
generation is due to fuel shortage) will be limited on NTPC.
Well positioned in a challenging sector
NTPC is the by far the best placed power generator in the country with fuel
cost pass through for all its existing and upcoming power plants. In case of
fuel shortage it can import coal and pass through the cost increase to the
customers. The stock has marginally outperformed the market since we
upgraded it in Dec-10. It continues to be a good stock for investors looking
for safe havens or those looking for low teen returns. NTPC remains one of
the few positive recommendations in the power sector in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings downgrade
Following our recent power sector meetings in Delhi we are cutting
NTPC’s capacity addition estimates for FY12-13 and lowering our
earnings by 1-5%. We have also cut NTPC’s long term capacity addition
from 4GW per annum to 3-3.5GW given the coal shortages and other
constraints. This brings down our target price from Rs210 to Rs195 and
our reco from BUY to O-PF. We believe NTPC will be the power generator
least impacted by coal shortages in the country as it can pass through
higher cost of imported coal to customers and most of its returns and
incentives are linked to availability of power plants instead of generation.
However, NTPC’s growth rate will be impacted by the coal shortages.
Capacity addition continues to suffer; earnings cut
At the beginning of the 11th plan our capacity addition targets for NTPC were
c.60% of NTPC’s own target which we later cut to 45%. It looks likely now
that NTPC will achieve only 40% of the initial target i.e. 8.8GW or 1.8GW per
annum. Given that c.15GW of capacity is already under construction and
another 10GW is likely to be awarded this year, the capacity addition score
should be much better for the 12th plan. However, looking at the setbacks
faced in the recent years, we are taking a conservative view and building in
only 3-3.5GW per annum capacity addition post FY12. We are cutting FY12
EPS by 1% and FY13 EPS by 5% primarily on account of lower capacity.
Utilisation likely to be affected…but little impact on earnings
NTPC’s power capacity utilisation in Apr-Sep 2011 is down by 3.5ppt YoY due
to exceptionally strong hydro and nuclear power generation (which lowered
the demand for thermal power), backing down by state utilities and coal
shortages at some stations. Availability of power plants however is most
important for NTPC as over 80% of its profits are linked to it. The profits
linked to actual generation will decline proportionately with level of
generation. Hence the impact of lower generation on profits (unless lower
generation is due to fuel shortage) will be limited on NTPC.
Well positioned in a challenging sector
NTPC is the by far the best placed power generator in the country with fuel
cost pass through for all its existing and upcoming power plants. In case of
fuel shortage it can import coal and pass through the cost increase to the
customers. The stock has marginally outperformed the market since we
upgraded it in Dec-10. It continues to be a good stock for investors looking
for safe havens or those looking for low teen returns. NTPC remains one of
the few positive recommendations in the power sector in India.
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