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Headline numbers look more promising than reality. NTPCs earnings performance remains lackluster—3Q profit growth (7%) was aided by a Rs6.6 bn tax credit even as PBT fell 16% yoy. While we view the proposals for bonus debentures and acquisition of assets positively as they addresses capital-allocation in a better manner, weakness in the underlying return profile precludes a favorable stance. Maintain REDUCE with a revised price target of Rs145/share (Rs140/share previously).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Tax credits do the trick for the fourth straight quarter NTPC reported revenues of Rs187 bn (0% yoy, 13% qoq) EBITDA of Rs45 bn (-2% yoy, 47% qoq) and net income of Rs31 bn (7% yoy,48% qoq) against our estimates of Rs184 bn, Rs43 bn and Rs24 bn respectively. Earnings outperformance is primarily because of a tax reversal of Rs6.6 bn, which led to an effective tax rate of 3.5% compared with the 24% that we factored. Prior-period income totaled Rs1.2 bn. Profit before tax was down 16% yoy, giving a more correct picture of the earnings profile, which has been hampered by a more stringent regulatory regime. For 9MFY15, PBT (at Rs74 bn) is down 30% yoy with an effective tax rate of 1% being the only cushion to reported earnings. Improving the capital allocation, addressing fuel security NTPC is setting straight its under-leveraged balance sheet by issuing bonus debentures (of Rs12.5/share with coupon of ~8.5%) that will have the dual benefits of improving its balance sheet leverage through low cost borrowing and improving the return ratios. Utilizing funds that are currently deployed in cash and investments to acquire power plants that have been put up for sale will further optimize NTPCs capital allocation. Allotment of coal blocks (previously de-allocated) will help reduce fuel-related issues for NTPC’s large coal-dominated portfolio. NTPC had previously held coal blocks aggregating 8 bn tons of which 6 bn tons of blocks were de-allocated after the Supreme Court order. We remain hopeful that NTPC will be re-allotted the coal blocks that it previously held that have been classified for utilization by public-sector entities through the allotment route. We do not see NTPC as an aggressive participant in the auction process as it would imply losing out on extant linkages as well as the benefit of cost-plus sale arrangements. Maintain REDUCE rating with revised price target of Rs145/share While acquisition of stressed assets, improved utilization rates, and better coal availability are promising, it offers limited upside risk to our current fair-value estimate. Accordingly, we maintain our REDUCE rating with a revised price target of Rs145/share (Rs140/share previously), and have revised our earnings for FY2015 upwards by 16% to factor lower tax expense.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
Headline numbers look more promising than reality. NTPCs earnings performance remains lackluster—3Q profit growth (7%) was aided by a Rs6.6 bn tax credit even as PBT fell 16% yoy. While we view the proposals for bonus debentures and acquisition of assets positively as they addresses capital-allocation in a better manner, weakness in the underlying return profile precludes a favorable stance. Maintain REDUCE with a revised price target of Rs145/share (Rs140/share previously).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Tax credits do the trick for the fourth straight quarter NTPC reported revenues of Rs187 bn (0% yoy, 13% qoq) EBITDA of Rs45 bn (-2% yoy, 47% qoq) and net income of Rs31 bn (7% yoy,48% qoq) against our estimates of Rs184 bn, Rs43 bn and Rs24 bn respectively. Earnings outperformance is primarily because of a tax reversal of Rs6.6 bn, which led to an effective tax rate of 3.5% compared with the 24% that we factored. Prior-period income totaled Rs1.2 bn. Profit before tax was down 16% yoy, giving a more correct picture of the earnings profile, which has been hampered by a more stringent regulatory regime. For 9MFY15, PBT (at Rs74 bn) is down 30% yoy with an effective tax rate of 1% being the only cushion to reported earnings. Improving the capital allocation, addressing fuel security NTPC is setting straight its under-leveraged balance sheet by issuing bonus debentures (of Rs12.5/share with coupon of ~8.5%) that will have the dual benefits of improving its balance sheet leverage through low cost borrowing and improving the return ratios. Utilizing funds that are currently deployed in cash and investments to acquire power plants that have been put up for sale will further optimize NTPCs capital allocation. Allotment of coal blocks (previously de-allocated) will help reduce fuel-related issues for NTPC’s large coal-dominated portfolio. NTPC had previously held coal blocks aggregating 8 bn tons of which 6 bn tons of blocks were de-allocated after the Supreme Court order. We remain hopeful that NTPC will be re-allotted the coal blocks that it previously held that have been classified for utilization by public-sector entities through the allotment route. We do not see NTPC as an aggressive participant in the auction process as it would imply losing out on extant linkages as well as the benefit of cost-plus sale arrangements. Maintain REDUCE rating with revised price target of Rs145/share While acquisition of stressed assets, improved utilization rates, and better coal availability are promising, it offers limited upside risk to our current fair-value estimate. Accordingly, we maintain our REDUCE rating with a revised price target of Rs145/share (Rs140/share previously), and have revised our earnings for FY2015 upwards by 16% to factor lower tax expense.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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