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NTPC 2QFY12 adjusted PAT at Rs 18.5 bn (flat yoy) is lower than our expectation of Rs19.8 bn,
possibly led by under-recovery of fixed charges due to lower PAF vs normative requirement,
lower incentives, etc. We believe fuel sourcing will be the key determinant of NTPC’s future
growth/profitability. Hold.
2QFY12 earnings lower than expectation .
�� NTPC 2QFY12 adjusted PAT at Rs18.5 bn (flat yoy) is lower than our expectation of Rs19.8
bn, possibly led by under-recovery of fixed charges in some plants due to lower Plant
Availability Factor (PAF) vs normative requirement (85%), lower availability based incentives,
etc.
�� For the quarter, PAF for coal based plants was down 300bp yoy to 83.4% and PLF was down
450bp yoy to 78.4%.
�� Note that NTPC has commercialised 1GW capacity from 2QFY11 to 2QFY12. Despite the
addition, gross generation for the quarter is down 2.6% yoy to 50.86 BUs and energy sent out
is down 3.8% yoy to 46.92 BUs.
�� Management highlighted in the concall that generation loss, in the quarter, was due to backdown
request from SEBs and planned maintenance shut-down (due to higher nuclear and
hydro generation yoy) was 5.413 BUs (1HFY12 at 9.247 BUs) and 1.944 BUs (1HFY12 at
3.174 BUs) was lost due to fuel related issues.
�� Note that NTPC’s blended coal cost has increased by 26% yoy to Rs 2,615/ton, due to higher
usage of imported and e-auction coal, which is reflected in higher per unit fuel cost at Rs
2.09/unit for the quarter vs 1.6/unit in 2QFY11. Higher fuel cost per unit for an individual
station might possibly lead to back-down request from SEBs as per merit order dispatch
schedule.
Key highlights from the concall:
�� Management highlighted that 2QFY12 adjusted PAT is Rs 16.1 bn vs Rs13.4bn for 2QFY11.
We note that 2QFY12 adjusted PAT, as shared by the management, excludes impact of RoE
gross up at marginal tax rate vs. MAT at ~Rs2.4bn; including the aforesaid adjusted PAT
should be Rs18.5 bn for the quarter.
�� Also, adjusted PAT for 2QFY11 (including RoE gross up at marginal tax rate vs. MAT) as
shared by the management in 2QFY11 concall was Rs 18.51 bn (vs. Rs 13.4 bn shared in
2QFY12 concall) and we find it difficult to reconcile two different adjusted PAT numbers (
even after including RoE gross up at marginal tax rate vs. MAT).
�� Company maintains that it will add 4.3 GW commercial capacity in FY12 vs our estimate of
3.3 GW (based on CEA data).
�� MoC has decided to allot 5 fresh captive coal blocks to NTPC for its upcoming plants at
Unchahar, Kudgi, Barethi, Gajmara, etc. Once allotment is finalised, NTPC’s will have
complete fuel security for the 9x800 MW projects to be commissioned in FY16/17 (partially
through coal linkage and rest through captive coal).
Also, NTPC has requested the Ministry of Coal (MoC) to re-consider its decision to deallocate
5 captive coal blocks and is confident of a positive outcome on the issue.
Company has recently signed Fuel Supply Agreement (FSA) for 16 mt of coal for
Ramagundam, Farakka and Kahalgoan ( units commissioned post March,2009). We await
further clarity on ACQ level for each unit, default trigger level, etc.
To counter coal shortage risk, company has recently signed bilateral agreements at a price
that is higher than the notified price of coal and is increasing e-auction exposure.
As for delays in payment from SEBs, company agreed that average payment period has
increased from 15-30 days to 45-60 days. However given NTPC’s rebate mechanism, delays
in payment is not negative for the company.
Maintain hold with a target price of Rs 180
NTPC's capacity addition should accelerate over the next two years, driving earnings at a
12% CAGR over FY11-14F. However, lower generation-linked incentives on fuel shortage
and ROE gross-up at MAT vs the marginal tax rate could lower core ROE from historical
average of 25-26% by 300-400bp each. We maintain hold with a target price of Rs180.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC 2QFY12 adjusted PAT at Rs 18.5 bn (flat yoy) is lower than our expectation of Rs19.8 bn,
possibly led by under-recovery of fixed charges due to lower PAF vs normative requirement,
lower incentives, etc. We believe fuel sourcing will be the key determinant of NTPC’s future
growth/profitability. Hold.
2QFY12 earnings lower than expectation .
�� NTPC 2QFY12 adjusted PAT at Rs18.5 bn (flat yoy) is lower than our expectation of Rs19.8
bn, possibly led by under-recovery of fixed charges in some plants due to lower Plant
Availability Factor (PAF) vs normative requirement (85%), lower availability based incentives,
etc.
�� For the quarter, PAF for coal based plants was down 300bp yoy to 83.4% and PLF was down
450bp yoy to 78.4%.
�� Note that NTPC has commercialised 1GW capacity from 2QFY11 to 2QFY12. Despite the
addition, gross generation for the quarter is down 2.6% yoy to 50.86 BUs and energy sent out
is down 3.8% yoy to 46.92 BUs.
�� Management highlighted in the concall that generation loss, in the quarter, was due to backdown
request from SEBs and planned maintenance shut-down (due to higher nuclear and
hydro generation yoy) was 5.413 BUs (1HFY12 at 9.247 BUs) and 1.944 BUs (1HFY12 at
3.174 BUs) was lost due to fuel related issues.
�� Note that NTPC’s blended coal cost has increased by 26% yoy to Rs 2,615/ton, due to higher
usage of imported and e-auction coal, which is reflected in higher per unit fuel cost at Rs
2.09/unit for the quarter vs 1.6/unit in 2QFY11. Higher fuel cost per unit for an individual
station might possibly lead to back-down request from SEBs as per merit order dispatch
schedule.
Key highlights from the concall:
�� Management highlighted that 2QFY12 adjusted PAT is Rs 16.1 bn vs Rs13.4bn for 2QFY11.
We note that 2QFY12 adjusted PAT, as shared by the management, excludes impact of RoE
gross up at marginal tax rate vs. MAT at ~Rs2.4bn; including the aforesaid adjusted PAT
should be Rs18.5 bn for the quarter.
�� Also, adjusted PAT for 2QFY11 (including RoE gross up at marginal tax rate vs. MAT) as
shared by the management in 2QFY11 concall was Rs 18.51 bn (vs. Rs 13.4 bn shared in
2QFY12 concall) and we find it difficult to reconcile two different adjusted PAT numbers (
even after including RoE gross up at marginal tax rate vs. MAT).
�� Company maintains that it will add 4.3 GW commercial capacity in FY12 vs our estimate of
3.3 GW (based on CEA data).
�� MoC has decided to allot 5 fresh captive coal blocks to NTPC for its upcoming plants at
Unchahar, Kudgi, Barethi, Gajmara, etc. Once allotment is finalised, NTPC’s will have
complete fuel security for the 9x800 MW projects to be commissioned in FY16/17 (partially
through coal linkage and rest through captive coal).
Also, NTPC has requested the Ministry of Coal (MoC) to re-consider its decision to deallocate
5 captive coal blocks and is confident of a positive outcome on the issue.
Company has recently signed Fuel Supply Agreement (FSA) for 16 mt of coal for
Ramagundam, Farakka and Kahalgoan ( units commissioned post March,2009). We await
further clarity on ACQ level for each unit, default trigger level, etc.
To counter coal shortage risk, company has recently signed bilateral agreements at a price
that is higher than the notified price of coal and is increasing e-auction exposure.
As for delays in payment from SEBs, company agreed that average payment period has
increased from 15-30 days to 45-60 days. However given NTPC’s rebate mechanism, delays
in payment is not negative for the company.
Maintain hold with a target price of Rs 180
NTPC's capacity addition should accelerate over the next two years, driving earnings at a
12% CAGR over FY11-14F. However, lower generation-linked incentives on fuel shortage
and ROE gross-up at MAT vs the marginal tax rate could lower core ROE from historical
average of 25-26% by 300-400bp each. We maintain hold with a target price of Rs180.
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