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NTPC Ltd.
Weak 2Q on many headwinds,
Treasury helps; Debtors double
„Weak 2Q – loss of incentives on lower PAF & expensive fuels; U/P
NTPC 2Q Rec PAT slowed to 2%YoY (-13% BofAMLe). Quality of 2Q was poor
as fall in power incentives (EBIT fell 1%) was offset by 45%YoY growth in other
income / treasury yield (+280bps). Headwinds in 2Q were – Plant Availability
factor (PAF) fell by ~300bps to 83.4% (below incentive threshold of 85%) and
debtor days doubled. NTPC’s generation fell by 2.5%YoY as its clients back-down
NTPC’s expensive imported coal / gas stations. Reiterate our non-consensus U/P
rating, on slowing growth, one of the most expensive regulated utility valuations of
2x P/BV for RoE of 14% (FY12) and 2% outperformance YTD.
Generation down – clients shun imported coal v/s Hydro / Nuke
NTPC 2Q generation fell 2.5%YoY. Coal based generation fell 1.5%YoY despite
capacity +8.5%YoY on fall in generation at 12 out of its 15 coal stations having
coal stocks of less than 7 days (Chart 4). To cut costs, its clients shun NTPC’s
expensive imported coal / gas (generation -11%YoY) and shift to cheaper fuels
(Hydro / Nuke). NTPC maintained generation guidance of 235bu in FY12, which
require a 15%YoY growth in 2H vs 2%YoY fall 1H, which looks a tough ask.
Balance sheet impact – debtor day 2x and payment delayed
Debtors days have gone up by >2x to 69 days (vs 33days in 2Q11). Average
payment on 1st day gone down from 60% to 30-35%, while payment on 60th day is up from 5-10% to 20-25%, indicating worsening financials of its customers.
Secular growth slowed by delay in capex, Underperform
Negative catalysts are: 1) delay in capex - missed its FY11 capex target by 43%
on execution delays by its Russian vendors and delay in ordering of bulk tender,
impacting its PAT/RoE growth, 2) risk of tax gross-up @ MAT in FY12E impacting
EPS growth, 3) increased competition and 4) rich valuation - P/BV at 2x FY12E,
highest among the reg. Asian utilities. Pick-up in power / coal capex and higher
than 15.5% RoE on gross-up of tax @ peak rate are positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs192 for NTPC is based on DCF valuation which assumes WACC of
10.4pct on a lower risk-free rate and a terminal growth rate of 1pct. It is led by
higher capacity, utilization rates & efficiency gains on the back of increased fuel
security. Risks to our price objective are: (a) Gas supply to existing/new plants,
(b) Likely end to the negotiated project allocation window from FY12E, (c)
Potential cut in RoE with likely improved demand-supply gap of power, (d)
Potential entry into unrelated businesses (boilers) and (e) Increased competition
from the private sector. Upside risks: A pick-up in capex and higher than 15.5%
RoE on gross-up of income tax / coal capex.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC Ltd.
Weak 2Q on many headwinds,
Treasury helps; Debtors double
„Weak 2Q – loss of incentives on lower PAF & expensive fuels; U/P
NTPC 2Q Rec PAT slowed to 2%YoY (-13% BofAMLe). Quality of 2Q was poor
as fall in power incentives (EBIT fell 1%) was offset by 45%YoY growth in other
income / treasury yield (+280bps). Headwinds in 2Q were – Plant Availability
factor (PAF) fell by ~300bps to 83.4% (below incentive threshold of 85%) and
debtor days doubled. NTPC’s generation fell by 2.5%YoY as its clients back-down
NTPC’s expensive imported coal / gas stations. Reiterate our non-consensus U/P
rating, on slowing growth, one of the most expensive regulated utility valuations of
2x P/BV for RoE of 14% (FY12) and 2% outperformance YTD.
Generation down – clients shun imported coal v/s Hydro / Nuke
NTPC 2Q generation fell 2.5%YoY. Coal based generation fell 1.5%YoY despite
capacity +8.5%YoY on fall in generation at 12 out of its 15 coal stations having
coal stocks of less than 7 days (Chart 4). To cut costs, its clients shun NTPC’s
expensive imported coal / gas (generation -11%YoY) and shift to cheaper fuels
(Hydro / Nuke). NTPC maintained generation guidance of 235bu in FY12, which
require a 15%YoY growth in 2H vs 2%YoY fall 1H, which looks a tough ask.
Balance sheet impact – debtor day 2x and payment delayed
Debtors days have gone up by >2x to 69 days (vs 33days in 2Q11). Average
payment on 1st day gone down from 60% to 30-35%, while payment on 60th day is up from 5-10% to 20-25%, indicating worsening financials of its customers.
Secular growth slowed by delay in capex, Underperform
Negative catalysts are: 1) delay in capex - missed its FY11 capex target by 43%
on execution delays by its Russian vendors and delay in ordering of bulk tender,
impacting its PAT/RoE growth, 2) risk of tax gross-up @ MAT in FY12E impacting
EPS growth, 3) increased competition and 4) rich valuation - P/BV at 2x FY12E,
highest among the reg. Asian utilities. Pick-up in power / coal capex and higher
than 15.5% RoE on gross-up of tax @ peak rate are positive catalysts.
Price objective basis & risk
NTPC Ltd (NTHPF)
Our PO of Rs192 for NTPC is based on DCF valuation which assumes WACC of
10.4pct on a lower risk-free rate and a terminal growth rate of 1pct. It is led by
higher capacity, utilization rates & efficiency gains on the back of increased fuel
security. Risks to our price objective are: (a) Gas supply to existing/new plants,
(b) Likely end to the negotiated project allocation window from FY12E, (c)
Potential cut in RoE with likely improved demand-supply gap of power, (d)
Potential entry into unrelated businesses (boilers) and (e) Increased competition
from the private sector. Upside risks: A pick-up in capex and higher than 15.5%
RoE on gross-up of income tax / coal capex.
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