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NTPC
Neutral
NTPC.BO, NTPC IN
4QFY11 results: accounting changes lead to better
profit, but execution remains the real issue
• NTPC’s 4Q results were a maze of accounting adjustments. The
audited PAT of Rs27.8B was ~11% higher than provisional no. (Rs25.1B)
announced in early April. On the whole, it appears tariffs were overaccounted
in previous years, and current year EBITDA suffered as those
were reversed. This was made up by a) non-operating write-backs and b)
accounting for RoE with higher ‘peak’ tax rate rather than lower ‘MAT’
rate. The sustainability of earnings on the back of accounting changes will
be known only when there is clarity from the regulator / company.
• Accounting changes a red herring; execution is the real stock
performance determinant: NTPC added 2.5GW in FY11 vs its original
target of 4.15GW. For FY12, MoU target is 4.32GW and we think the
company will add 3.3GW. Thus, the company is not catching up on its
past slip-ups in FY12; rather we think it’s a FY13 event. We reduce
FY12/FY13 estimates by 5.1/2.7%. We expect NTPC to end the 11th plan
with 37.5GW vs original target of 50GW (incl JVs).
• Earnings call key takeaways: (1) Optimistic that recent coal ministry
decision to de-allocate coal blocks would be reviewed: NTPC has incurred
capex of Rs5.1B for the mines allocated to it incl. Rs3.5B for Pakrih
Barwadih. (2) Continued rampant back-down of NTPC's plants resulting
from buyer-states procuring more hydropower – this impacted generation,
but not earnings, which are availability based. Backing-down a low-cost
producer is surprising, given country’s power shortages. (3) No progress
on merchant plans: in fact, 75MW of the slated merchant capacity from
Korba is being sold via a short term PPA at regulated rates to Chattisgarh
SEB.
• The stock has held up against sharply falling IPPs; PPAs with assured
15.5% RoE and FSAs for existing capacities add to defensive appeal, in
our view. But we think the stock will at best be a market performer until
the on-ground the project completions gather pace. We stay Neutral and
our new Mar-12 PT is Rs200. Continued project delays is a key downside
risk
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC
Neutral
NTPC.BO, NTPC IN
4QFY11 results: accounting changes lead to better
profit, but execution remains the real issue
• NTPC’s 4Q results were a maze of accounting adjustments. The
audited PAT of Rs27.8B was ~11% higher than provisional no. (Rs25.1B)
announced in early April. On the whole, it appears tariffs were overaccounted
in previous years, and current year EBITDA suffered as those
were reversed. This was made up by a) non-operating write-backs and b)
accounting for RoE with higher ‘peak’ tax rate rather than lower ‘MAT’
rate. The sustainability of earnings on the back of accounting changes will
be known only when there is clarity from the regulator / company.
• Accounting changes a red herring; execution is the real stock
performance determinant: NTPC added 2.5GW in FY11 vs its original
target of 4.15GW. For FY12, MoU target is 4.32GW and we think the
company will add 3.3GW. Thus, the company is not catching up on its
past slip-ups in FY12; rather we think it’s a FY13 event. We reduce
FY12/FY13 estimates by 5.1/2.7%. We expect NTPC to end the 11th plan
with 37.5GW vs original target of 50GW (incl JVs).
• Earnings call key takeaways: (1) Optimistic that recent coal ministry
decision to de-allocate coal blocks would be reviewed: NTPC has incurred
capex of Rs5.1B for the mines allocated to it incl. Rs3.5B for Pakrih
Barwadih. (2) Continued rampant back-down of NTPC's plants resulting
from buyer-states procuring more hydropower – this impacted generation,
but not earnings, which are availability based. Backing-down a low-cost
producer is surprising, given country’s power shortages. (3) No progress
on merchant plans: in fact, 75MW of the slated merchant capacity from
Korba is being sold via a short term PPA at regulated rates to Chattisgarh
SEB.
• The stock has held up against sharply falling IPPs; PPAs with assured
15.5% RoE and FSAs for existing capacities add to defensive appeal, in
our view. But we think the stock will at best be a market performer until
the on-ground the project completions gather pace. We stay Neutral and
our new Mar-12 PT is Rs200. Continued project delays is a key downside
risk
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