NTPC F2Q12: High Coal Costs Bring Down Profits: Morgan Stanley Research,

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NTPC
F2Q12: High Coal Costs
Bring Down Profits
Quick Comment: NTPC reported F2Q12 income of
Rs155.3bn (up 21% YoY), EBITDA of Rs29.8bn (up
15% YoY), and reported profit of Rs24.2bn (up 15%
YoY). Adjusted profit for the quarter stood at Rs16.1bn
(up 21% YoY). While the revenue was 5% above our
estimate, EBITDA was 15% below and the adjusted PAT
27% below. We believe, given the low PLF observed in
the quarter, the company might have missed out on
efficiency-linked gains (heat rate, etc.) and on the upside
from sale in the UI market.
What's new:
• The fuel cost/unit rose from Rs1.65/unit in F2Q11 to
Rs2.09/unit in F2Q12. The company does not
believe this is an issue as it has already passed on
the increase in costs to consumers.
• The PAF in F2Q12 was 83.44% for coal plants and
92.27% for gas plants. Despite lower availability of
coal plants, the company has realized full capacity
charges except for some under-recovery at Farakka
and Kahalgaon. The company will try to achieve
similar PAF for full year as F2011, which was 92%.
• The generation was 50.9 BU in F2Q12 vs. 52.2 BU
in F1Q12. The company attributes this fall mainly to
the planned shutdowns and high hydro and nuclear
generation. The generation loss in F2Q12 was 1.94
BU due to shortage of coal and 5.41 BU due to
planned shutdowns and backing down. With the
planned shutdowns mostly done and the monsoon
receding, the company hopes to achieve its
generation target for F2012.
• The company commercialized one unit of 500 MW
at Simhadri during the quarter and maintains its
target of adding 4,320 MW in F2012.
Investment thesis: The quarterly results do not change
our view on the stock, and we continue to believe that
NTPC’s regulated business model will provide a high
degree of visibility to the company’s profitability. The
stock trades at 2x P/B with a dividend yield of 3.2% on
our F2012 estimates, and so we maintain our
Overweight rating.
Key highlights from the conference call:
• The PLF of coal-based plants was 73.38% and for
gas-based plants was 60.84% during the quarter.
• The coal received during F2Q12 was 25.67mn tons vs.
28.88mn tons received during F2Q11. The company
imported 7.263mn tons of coal in F2Q12 (up 17% YoY).
• The company’s total capacity at the end of September
2011 was 34,850 MW (which included 3,364 MW of JV
capacity). The commercial capacity stood at 34,350 MW
with the 500 MW unit at Farakka remaining to be
commercialized. Post F2Q12, in October, the company
has synchronized a 500 MW unit at Jhajjar and
commercialized a 660 MW unit at Sipat.
• The company has obtained in-principle approval from the
Ministry of Coal for the allotment of five coal blocks for
upcoming power plants of the company.
• On the issue pertaining to the de-allocation of its captive
coal blocks, the company continues to believe that the
blocks will not be taken away. The company continues to
invest in developing these blocks, having spent Rs5.65bn
as of September 2011.
• The average borrowing cost for the company as of
September 2011 was 7.06% (6.42% as of September
2010).