NTPC- Better availability drives improved performance :: ICICI Securities, report

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Better availability drives improved performance • Generation increased 3.7% YoY, while tariff remained flat at | 3.3/Kwh leading to 3.9% YoY growth in revenue to | 18,598.2 crore • PAF for coal stations, however, declined 408 bps YoY to 91.0%. It improved 1424 bps QoQ basis as Vindhyachal, Farakka and Kahalgaon plant reported higher availability due to increased coal imports in Q3FY15. Consequently, PLF for coal stations improved to 80.8% in Q3FY15 vs. 73.2% in Q2FY15. Gas PAF improved to 93.2% vs. 89.1% QoQ while PLF declined to 31.8% vs. 33.4% QoQ • Adjusted PAT declined 11.9% YoY to | 2,555 crore while it was up 25.3% QoQ due to better PAF and PLF during the quarter, which led to lower under recovery. Adjusted PAT surpassed our estimate NTPC - better placed to face sectoral woes While the power sector continues to face constraints in terms of fuel availability and pricing, delayed clearances and rising debt, NTPC is much better placed compared to IPPs to face these challenges. With an installed capacity of 43.1 GW (~18% of India’s total capacity), NTPC generates ~250 BUs of electricity (27.4% of India’s total generation). It operates on a regulatory business model with fixed RoE (15.5% + incentives) and no merchant exposure. The PSU has assured fuel supply and offtake pact (for existing and upcoming capacities) with CIL and SEBs, respectively, where the fuel risk is a pass through. Furthermore, NTPC’s tariff is based on CERC regulation and is among the lowest in the country (| 2.8- 2.9/Kwhr over FY09-13), which lowers the risk of backdown by SEBs. Roadmap, going ahead NTPC’s installed capacity has grown at a CAGR of 6.5% over FY02-14. In the Twelfth Five Year Plan, we expect NTPC to add 13,058 MW, of which ~6,000 MW of capacity (46.5% of target) has already been added. For FY15E, we expect NTPC to add 1,363 MW and another 3,210 MW in FY16E. In terms of commercial capacity, which would add return to its equity, NTPC has added 1,500 MW in FY14 and is expected to add ~1,363 MW in FY15E, thereby leading to higher regulated assets. Government begins coal block allocation process With only five coal blocks under NTPC’s belt, post the apex courts’ verdict on coal block cancellation, the company is now gearing up to aggressively participate in the ongoing auction process. The government on January 21, 2015 kick-started the process of allocating cancelled coal mines to state-owned firms. In the first lot of dispensation, 35 coal blocks will be allocated to the PSUs. NTPC is in discussion with the government and the management is positive on getting back the cancelled mine through dispensation route. Furthermore, NTPC will also aggressively participate via e-auction route to apply for coal blocks considering, the fact that it has a huge cash balance of ~| 16,185 crore. Maintain BUY An improved Q3FY15E operating performance coupled with | 10,306 crore debenture bonus to be issued by NTPC by FY15E is expected to improve its RoE to 11.1% in FY16E vs. 10.8% earlier. Also, the coal block de-allocation is likely to act as a short-term overhang, as the company has a strong chance to win back the cancelled blocks. Furthermore, NTPC is evaluating acquisition of a few assets available for sale, which would enhance the company’s asset base and, thus, regulated equity. Factoring in the same, we maintain our BUY rating on NTPC by assigning a P/BV multiple of 1.5x FY16E to arrive at a target price of | 177

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