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NTPC (NTPC)
Utilities
One-offs camouflage underlying performance. NTPC’s reported numbers were
boosted by several prior-period items and do not reflect the underlying operating
weakness—(1) decline in generation (-2.5% yoy) and low availability (83% for coal
capacities) due to fuel constraints and shut downs, (2) muted capex and continued
slippages in capacity addition, and (3) rising debtors (69 days) reflecting delayed
payment by distribution utilities. Maintain REDUCE rating and PT of Rs180/share.
Adjusted for one-offs, results fail to cheer—operating performance falters
NTPC reported revenues of Rs153.8 bn (18% yoy, 9% qoq), operating profit of Rs32.4 bn (85%
yoy, 13% qoq) and net income of Rs24.2 bn (15% yoy, 17% qoq) against our estimate of Rs137
bn, Rs28.5 bn and Rs17.9 bn, respectively. Higher-than-estimated revenues were primarily on
account of (1) higher fuel cost (Rs2.09/kwh against estimated Rs1.79/kwh) (2) prior-period
revenues of Rs7.6 bn and taxes recoverable from customers of Rs0.6 bn.
Reported PAT was further boosted by higher other income and lower interest cost (owing to priorperiod
reversal of Rs2 bn). We note that adjusting for the one-offs, net income was marginally
below our estimates, with generation declining 2.5% yoy on account of (1) grid restrictions and
lower coal availability and (2) lower purchases on account of higher contribution from hydro-based
generation. We discuss the one-offs and other details of 2QFY12 results in a subsequent section.
Capex and capacity addition remain muted in 1HFY12, debtors days increase
We continue to be disappointed by NTPC’s sluggish pace of project execution and capacity
addition. NTPC incurred an estimated capex of Rs74 bn in 1HFY12 (28% of its full year MoU
target of Rs267 bn) while capacity addition has been restricted to one unit of 660 MW at Sipat
(COD in October 2011) in 1HFY12 against full year guidance of 4,320 MW. Both Simhadri (Unit 4)
and Jhajjar (Unit 2) units that were slated to commission in 1QFY12 have slipped further. Exhibit 6
below highlights the status of projects under construction. We are also concerned by the rising
debtor days, currently at 69 days and reflective of constrained financials of distribution utilities.
Valuations less demanding though not attractive enough, retain REDUCE
We maintain our REDUCE rating and target price of Rs180/share. NTPC is currently trading at 1.7X
FY2013E book value and 13X 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
5% and 10%, respectively with EPS of Rs11.5 and Rs12.7, respectively . In our view, 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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC (NTPC)
Utilities
One-offs camouflage underlying performance. NTPC’s reported numbers were
boosted by several prior-period items and do not reflect the underlying operating
weakness—(1) decline in generation (-2.5% yoy) and low availability (83% for coal
capacities) due to fuel constraints and shut downs, (2) muted capex and continued
slippages in capacity addition, and (3) rising debtors (69 days) reflecting delayed
payment by distribution utilities. Maintain REDUCE rating and PT of Rs180/share.
Adjusted for one-offs, results fail to cheer—operating performance falters
NTPC reported revenues of Rs153.8 bn (18% yoy, 9% qoq), operating profit of Rs32.4 bn (85%
yoy, 13% qoq) and net income of Rs24.2 bn (15% yoy, 17% qoq) against our estimate of Rs137
bn, Rs28.5 bn and Rs17.9 bn, respectively. Higher-than-estimated revenues were primarily on
account of (1) higher fuel cost (Rs2.09/kwh against estimated Rs1.79/kwh) (2) prior-period
revenues of Rs7.6 bn and taxes recoverable from customers of Rs0.6 bn.
Reported PAT was further boosted by higher other income and lower interest cost (owing to priorperiod
reversal of Rs2 bn). We note that adjusting for the one-offs, net income was marginally
below our estimates, with generation declining 2.5% yoy on account of (1) grid restrictions and
lower coal availability and (2) lower purchases on account of higher contribution from hydro-based
generation. We discuss the one-offs and other details of 2QFY12 results in a subsequent section.
Capex and capacity addition remain muted in 1HFY12, debtors days increase
We continue to be disappointed by NTPC’s sluggish pace of project execution and capacity
addition. NTPC incurred an estimated capex of Rs74 bn in 1HFY12 (28% of its full year MoU
target of Rs267 bn) while capacity addition has been restricted to one unit of 660 MW at Sipat
(COD in October 2011) in 1HFY12 against full year guidance of 4,320 MW. Both Simhadri (Unit 4)
and Jhajjar (Unit 2) units that were slated to commission in 1QFY12 have slipped further. Exhibit 6
below highlights the status of projects under construction. We are also concerned by the rising
debtor days, currently at 69 days and reflective of constrained financials of distribution utilities.
Valuations less demanding though not attractive enough, retain REDUCE
We maintain our REDUCE rating and target price of Rs180/share. NTPC is currently trading at 1.7X
FY2013E book value and 13X 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
5% and 10%, respectively with EPS of Rs11.5 and Rs12.7, respectively . In our view, 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.
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