NTPC: Non-recurring items boost earnings, Maintain BUY ::IFCI research

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Non-recurring items boost earnings, Maintain BUY

Adjusted sales up 14% and APAT up 21% YoY in 2QFY12: Neutralising the impact of prior-period sales of Rs 7.7 bn included in 2QFY12 vs. Rs 1.8 bn in 2QFY11, sales are up 14% YoY at Rs 146 bn against 18% reported. Similarly, after adjustment of prior-period items, write-back of AAD, depreciation impact, income tax, FERV, fixed charges and other adjustments, like-to-like PAT increased 21% YoY to Rs 16.1 bn against 15% YoY increase reported. 

Capacity addition highlights: NTPC commissioned 500 MW Farakka in 2QFY12. We expect standalone total capacity addition of 2070 MW in FY12. Based on the commissioning schedule, NTPC would receive earnings from pro-rata adjusted capacity of 1916 MW in FY12E, which includes 1 GW of capacity added in FY11. NTPC has 14 GW capacity under construction provide firm visibility. 

Higher other income and lower interest cost aid PAT: We highlight that incremental post tax other income at Rs 2.9 bn along with 44% YoY decrease in interest cost contributed 19% to EPS at Rs 0.56. Other income was higher due to 1) Dividend income of Rs 0.75bn and 2) Increase in weighted average earnings on investments at 9% vs 6% in 2QFY11. A favorable APTEL order led to interest cost reversal of Rs 1.98 bn and 44% YoY decline in interest cost.

Valuation: We maintain our BUY rating and a 12-month target price of Rs 218 on stable business model, earnings growth and attractive valuations.  At CMP, NTPC trades at a PB(x) of 1.9x FY12E and 1.7x FY13E; which is marginally above its historical P/B(x) trough of at 1.5x on a one-year forward basis.