Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC 2QFY11: Adjusted PAT below estimates; 4-6% earnings downgrade; High visibility on capacity addition; Buy
2QFY11 adjusted profit below estimates
- NTPC (NATP IN, Mkt Cap US$35.8b, CMP Rs201, Buy) reported 2QFY11 net revenues of Rs130b (up 2% YoY), EBITDA of Rs35b (up 9% YoY) and net profit of Rs21b (down 2% YoY). Reported profits includes several extraordinaries: i) Prior period sales (Rs1.8b), ii) Depreciation write-back (Rs18b), iii) provisions for receivables (Rs12.6b), iv) Tax arrears (Rs1.6b), v) One-time expenditure (Rs1.2b), etc.
- Also, deferred tax liability as at March 2010 has been reassessed (due to change in depreciation accounting based on CERC norms, vs Companies Act earlier) and Rs2.8b of deferred tax charge has been provided in 2QFY11 (Rs3.7b in 1HFY11).
- Adjusted net profit grew 1% to Rs18.5b, lower than our estimate of Rs23.6b.
Downgrading EPS for FY11 by 5.7% and FY12 by 3.6%
- NTPC will have to provide tax based on MAT rate unlike corporate tax rates in the past, given the expected accelerated trend in capacity addition and capex from FY11. This will result in grossing up of base RoE with MAT rather than full corporate tax rate, leading to lower incentives of Rs9.2b in FY11. Going forward too, the management expects MAT tax rate to largely continue. This has also impacted the operating performance in 2QFY11.
- Also, yield on treasury book has declined from 8.7% in 1HFY10 to 6.4% currently, leading to lower-than-estimated other income in 2QFY11.
- Depreciation rates will be lower, as based on the opinion of the Comptroller and Auditor General; depreciation will now be provided on CERC tariff rates and not Companies Act. This has led to lower depreciation of Rs1.1b in 1HFY11.
- Given these, we are downgrading estimates, and expect EPS of Rs10.9 in FY11 (downgrade of 5.7%), and Rs12.7 in FY12 (downgrade of 3.6%).
Operational performance muted given grid constraints, improved monsoons
- During 2QFY11, electricity generation stood at 52.2BUs (up 4% YoY) and sales at 47.8BUs (up 3.5% YoY). Coal based generation for NTPC has seen sequential decline from 16BUs in July 2010 to 14.5BUs in Sep-10, given the improved monsoons.
- PLFs were down from 86% in July 2010 to 79% in September 2010. Blended PLF for coal based projects stood at 82.9% in 2QFY11 vs 82.4% in 2QFY10.
- Generation from gas-based projects stood at 6BUs (down 12% YoY) in 2QFY11, given high cost of generation as hydro power supplied peaking power. Generation declined from 2.2BUs in July 2010 to 2.1BUs in August 2010 and 1.7BUs in September 2010. PLFs for gas-based projects stood at 74% in July 2010, 70% in August 2010 and 57% in September 2010.
Capacity addition target of 4.2GW, achieved 22% of FY11E targeted capex
- Over the past 12 months, NTPC has added 2.5GW and current installed base stands at 32.7GW.
- For FY11, the management of NTPC has guided for capacity addition of 4,150MW (vs total capacity addition of 4,300MW over FY08-10E), while it has commissioned 490MW of capacity till 1HFY11. Thus, ~3.2GW of capacity addition is expected in 2HFY11 and is a meaningful ramp up over historical averages.
- Our estimates for capacity addition are in-line with CEA estimate and are conservative given that we expect NTPC to add ~5.5GW of capacity in FY11 / FY12, comprising of 2.5GW in FY11 and 3GW in FY12.
- NTPC has planned capex of Rs223b on standalone basis and Rs291b on consolidated basis in FY11, indicating accelerated execution on projects under construction (v/s Rs101b in FY10 and budgeted capex of Rs177b).
- In 1HFY11, capex incurred stands at Rs63b including JVs implying 30% achievement of its full year target. Capex will increase post BTG award for 9X660MW supercritical projects; the management expects to award turbine-generator tenders in Nov 2010.
Projects under construction at 16.9GW to be commissioned by FY13E; project award pipeline robust during FY11/12; PPA signed for 62GW of projects, providing high visibility on target capacity of 75GW
- As on 2QFY11, NTPC’s installed capacity stands at 32.7GW, while projects under construction stand at 16.9GW. Projects under construction have been largely stable at 16.9GW in end FY08 and 17.9GW in end FY09.
- Management expects the 16.9GW of products under construction as at 1QFY11 to be commissioned by FY13E, comprising 4.2GW in FY11E, 6.5-7.0GW in FY12E and 6.0-7.0GW in FY13E.
- Project award pipeline in FY11 remains robust, with bids invited for 7.1GW of capacity (including 5.9GW on bulk tendering). Projects for which Feasibility Report have been approved stands at 4.3GW (vs NIL in FY09) and projects for which Feasibility Report has been prepared / under preparation stands at ~15GW. It also plans to finalize second round of bulk tendering too (9 sets of 800MW) by end FY11.
- During FY10, NTPC has awarded BTG contracts for only 890MW of capacity (and 2GW in FY09); and we expect BTG awards for ~25-30GW of capacity in FY11/12E, which again will be a meaningful ramp-up. This will also enable greater execution time of 60+ months for Twelfth Plan (FY13-17E) projects, limiting execution delays.
Valuation and view
- We currently expect NTPC to report net profit of Rs89.5b in FY11 and Rs104.8b in FY12 (up 17% YoY).
- At the CMP of Rs199, NTPC quotes at P/E of 18.3x FY11E and 15.7x FY12E. P/BV stands at 2.4x FY11E and 2.2x FY12E.
- Maintain Buy with price target of Rs240.
No comments:
Post a Comment