NTPC - 1Q12 headline in line, cash NPAT flat::Macquarie Research,

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NTPC
1Q12 headline in line, cash NPAT flat
Event
 NTPC reported results broadly in line with market expectations, with 1QFY12
NPAT of Rs.20.8bn (US$468m) vs consensus of Rs.21bn and Macq at
Rs.22bn. While NPAT was 13% higher than 1QFY11, underlying cash
earnings fell by 3% on pcp.
 In the near term, we expect 2Q12 to deliver slightly lower PLFs and softer UI
prices, which adversely impacts NTPC's profitability. Additionally, NTPC has
commissioned only 1 unit of 660MW at Simahdri at the end of 1Q12, providing
little momentum to 2Q12 earnings growth.
Impact
 1Q12 NPAT up 13% on pcp, cash earnings flatter: NPAT of Rs.20.8bn,
which was in line with market estimates, appeared to have appeased a
cautious market. However, the result was also aided by higher other income
(Rs.1.3bn variance from 1Q11), a negative deferred tax charge (Rs.1.3bn
variance) and a lower depreciation charge (Rs.0.4bn variance). Higher other
income is likely to have been driven by higher interest revenue, due to both a
higher cash balance than last year (+13%) and higher deposit rates.
 Keeping an eye on tax: The effective tax rate itself increased from 23% in
1Q11 to 29% in 2Q12, which we need to discuss further with the company.
Investors need to keep a close watch on the tax rate used by NTPC to grossup
its tariff under CERC regulation, as we estimate that a move from the
corporate tax rate to MAT (Mininum Alternate Tax) rate could result in ~10%
earnings downside.
 Analyst meeting next Monday 1 August: Instead of a quarterly conference
call, NTPC is holding its annual analyst meeting next Monday (1 August) at
the Trident Hotel in Nariman Point.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs248.00 based on a DCF methodology.
 Catalyst: further clarity around tax rate used for tariff calculation, market
conditions/risk appetite (due to NTPC’s defensive status).
Action and recommendation
 Outperform.