NTPC �� Another moderate quarter as plant load factor declines ::HSBC Research

Please Share::  India Equity Research Reports, IPO and Stock News

Visit http://indiaer.blogspot.com/ for complete details �� ��

NTPC
�� Another moderate quarter as plant load factor declines due to low
coal availability and demand in 2Q
�� Limited growth drivers and operational risks in the medium term to
keep the stock range-bound
�� Remain Neutral with a target price of INR194


2Q preview – another moderate
quarter
Generation should remain flat y-o-y at 52.3bn
units in 2Q (1QFY12 was 54.6bn units) despite
capacity additions of 2.7GW or 9% y-o-y growth
in FY11.
We expect a lower plant load factor (PLF) for its
coal-based plants at 78.4% (down 444bp y-o-y)
due to increasing fuel pressure and lower demand
during the quarter.
Net profit is expected to grow 7% y-o-y to
INR18.9bn in 2Q on a low base of comparison,
while revenue growth should be muted and
EBITDA flat. NTPC has grossed up revenue at a
minimum alternate tax (MAT) rate for 1Q-3Q
FY11, which was reversed in 4Q FY11.
Limited growth drivers, operational
risks to remain an overhang
With moderate capacity additions over the next 3-
5 years and a high base, we see limited growth for
NTPC. We expect the company to continue to
miss its capacity addition targets in FY12 and
beyond, and forecast installed capacity will reach
56GW by FY17 from 34GW in FY11 (growing at
a CAGR of 8%) against company guidance of
66.5GW (up at a CAGR of 11%). See Exhibit 16
for details of capacity likely to be added over
FY12-16.
We believe the stock will continue to remain
range-bound given its moderate EPS growth
potential (a 6% CAGR over FY12-13e) on high
comparative base. In addition, we see downside
risk due to lower operational efficiency (both due
to fuel pressure and lower demand from State

Distribution Companies), which we have factored
in only to the extent there is clarity but things can
deteriorate further, at least in the interim. Our
analysis suggests every 100bp decline in average
PLF for NTPC would translate to a c3% decline in
net profit and a similar decline in our target price.
Investors focusing on generation and
capacity addition
Investors will be watching for signs that the
generation outlook is continuing to weaken given
low fuel availability.
They will also be looking for progress on its
capacity addition target of 4.3GW for FY12
(1.3GW added in 1H) as well as future capacity
additions (14.7GW under construction).
Lastly, we believe the market will also be
watching for the applicability of MAT in FY12
and thereafter.
Remain Neutral rating with a target
price of INR194
We use DCF to value NTPC and apply a WACC
of 10.3% (assuming a cost of debt of 8.7%, cost of
equity of 10.9%, beta of 0.9, and terminal growth
of 4%) to derive our target price of INR194 per
share, implying a potential return of 14.0%
(including dividend yield), which is within the
Neutral band for non-volatile Indian stocks of 6-
16%; hence, we remain Neutral on the stock.
Our target price of INR194 implies an FY13e PB of
2.0x versus the current FY12e PB of 1.9x, and an
FY13e PE of 15.7x versus the current FY12e PE of
15.5x.
Risks
Key upside risks are faster-than-expected
execution of projects under construction and
upside from profits from captive coal mines.
Downside risk includes non-availability of fuel
impacting its operations and efficiency gains

see sector view and other company details (click link below):

Indian Power- A muted quarter ::HSBC Research