NTPC Adjusted PAT lower than Estimates: Motilal OSwal

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 Adjusted PAT lower than Estimates: During 3QFY12, NTPC reported adjusted PAT at INR21.7b, including benefit
of gross up using corporate tax rate. However, adjusting for the benefit (as we consider the benefit would be
non-recurring in FY13), the PAT for the quarter stood at INR19.4b, lower than our estimate of INR25.4b. Lower
than estimated PAT is due to 1) Higher maintenance related expenses, 2) Lower Incentive income.
 Operating Performance Muted: Coal projects plant load factor (PLF) for the quarter stood lower at 83.6% v/s
87.1% YoY, while plant availability factor (PAF) stood at 85.2% v/s 93.6% YoY. NTPC faced sizable loss of
generation in the quarter owing to grid constraint and fuel availability impacting availability / generation
linked incentives. Management indicated improved fuel availability for the month of January 2011 with PAF
of 92% and expects PAF to improve by 200-250bp QoQ (vs 85.3% in 3QFY12 for coal projects).
 Other takeaways from the concall: i) FY12 capacity addition target maintained at 4.98GW (vs 1.7GW achieved
till date), ii) Commercial capacity addition could be ~2.7GW (1.1GW till date), iii) reported debtor days of 77
days higher due to past dues and recent tariff order approvals, adjusted for the same, recurring debtor days
position comfortable at 56 days (though up from 45 days YoY), IV) Standalone capex target at INR174b, down
from INR264b earlier.
 Cut our earnings estimates: We have cut our earnings estimate for NTPC by ~10% each for FY12/FY13 given
delays in commercialization of capacity, impact on availability/generation linked incentive owing to fuel
supply issues. We now expect NTPC to report EPS of INR9.6/sh in FY12E and INR11/sh in FY13E, Buy.
3QFY12 performance impacted by generation loss, lower availability
 During 3QFY12, NTPC reported revenues of INR153b (up 14% YoY), EBIDTA of INR29b
(down 26% YoY) and reported net profit of INR21.3b (down 10% YoY). Reported
PAT includes several extra ordinaries and adjusted PAT as per the company stood
at INR21.7b. However PAT adjusted on account of corporate tax gross up which is
non-recurring in our view as capacity addition gets bunched up in FY13. We thus
calculate adjusted PAT at INR19.4b, lower than our estimate of INR25.4b.
 Lower than estimated PAT is due to 1) Higher maintenance related expenses
depressing reported profits, 2) Lower Incentive income as Coal plant PLF for the
quarter stood lower at 83.6% v/s 87.1% YoY and lower Coal plant PAF at 85.2% v/s
93.6% YoY. Gas based project PLF stood at 70.5%, vs 66.3% in 3QFY11. Also, NTPC's
loss of generation due to grid constraint (2.7BUs) and fuel availability (3.8BU, vs
647MUs YoY) was higher steeply impacting generation linked incentives.
 We however note that operating performance was impacted largely in October
month owing to several one-off events like Coal India strike, lower production/
dispatch, etc. For the month of November / December, the PLFs for NTPC project
stood at 87%, vs 77.3% in October 2011. Infact, excluding Farakka / Kahalgaon
project (PLF of 72% in Nov/Dec 2011, vs 63% in Oct 2011), the PLFs for other projects
stood above 87%. In our view, the fuel supply issue for NTPC could be medium
term issues, as the logistics constrains are addressed for projects like Farakka/
Kahalgaon, captive mine production begins in CY13 and domestic coal availability
is improved.
 Management has indicated improved availability of fuel in January 2011 with
availability factor boosting to 92% (realization of 105% of ACQ qty in Jan-12) and
expect PAF to improve by 200-250bps QoQ (vs 85.3% in 3QFY12 for coal projects).
It is thus crucial to monitor the generation/PLF for the 4QFY12, as higher availability
could boost FY12 PAF factor for NTPC (YTD FY12 at 86.2%, vs FY12 target of 89% inline
with FY11 target).

Other takeaways from concall
 Reported debtor days at 77, adjusted at 56: As on 3QFY12 its debtors days stood
at 77 v/s 45 YoY, which is partly due to Desu period dues, as well as tariff revision
for its projects. Tariff revision is to be recovered from beneficiaries over six
monthly equal installment and thus, adjusted for both items, the debtor days
stood at 56, representing an increase of 11 days YoY. This is within the prescribed
period of 60 days payment cycle.
 Capacity addition target still at 4.98GW, 1.6GW of commercialization over Feb-
Mar-12: NTPC has maintained its capacity addition target for FY12 at 4.9GW, vs
capacity addition of 1.7GW YTDFY12. Similarly, management guided for
commercialization of 1.6GW capacity over the next two months of FY12 (1.1GW
already done), comprising of 500MW each at Jhajjar, Farakka and 660MW at
Sipat. Given the delays and back ended commissioning, we note that there
could be risk of slippages of the capacity to FY13. For FY13, NTPC is targeting to
add 4GW of capacity.
 Capex target lowered, ~8GW of BTG award possible in 6-9 months time: Given
delay in BTG award and land related issues NTPC has lowered its capex target
for FY12 at INR174b (v/s INR264b earlier). Over Apr/Jan-12 it has incurred capex
of INR92b. On BTG award front, management expect Supreme Court final order
to come out by mid-February (final hearing was over on 11 January 2012) and
could then award the 11 sets of 660MW (5.4GW for NTPC 9 sets) over next 2-3
months. Similarly, NTPC is in the process to invite tender for BTG of 3x800MW
Kudgi and this along with other supercritical units could mean at least 8GW of
order award over next 6-9 months. These awards are critical and successful
project awards will improve visibility for 12th Plan capacity addition targets at
~25GW.
 Over the past 3 years, cumulative BTG awards stands at just 3GW, given delays
in bulk tendering. These delays will impact the pace of capacity addition beyond
FY14, as projects under construction of ~12GW will be largely commissioned by
FY14; and new BTG awards in FY12 will contribute to capacity additions only
from end FY15 / FY16 onwards.