Signs of stabilisation NTPC: HDFC Securities

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Signs of stabilisation NTPC’s 3QFY15 APAT of Rs 22.9bn was ahead of our estimate of Rs 20bn as core earnings surprised positively. Company’s RoE continues to be negatively impacted by 2014-19 tariff regulations but 3Q numbers suggest that the impact may be lesser than what was visible in 1HFY15 numbers. With the implementation of CERC’s 2014 tariff regulations, we expect NTPC’s core RoE to be in the range of 17-19% over the next 5 years, much lower than 21-25% seen during the earlier tariff regime. While power demand revival can aid RoE, we believe current valuation (1.8x FY16E regulated book) factors in any such improvement. We reduce our FY15 EPS earnings by 3% to align with other income reported in 9MFY15. Maintain neutral with SOP based TP to Rs 157/sh.  Gross generation during the quarter was 61.3bn units (up 4% YoY), driven primarily by capacity addition. Commercial capacity of NTPC stands at 37.1GW vs 34.9GW in 3QFY14.  Regulated equity as of 2QFY15 is Rs 366bn (up Rs 8bn QoQ) as company commercialised 660 MW unit 1 of Barh stage II. Capex planned for FY15 is Rs 224bn and capex incurred durign 9MFY15 is Rs 135bn. Further 1,060MW capacity is expected to be added in FY15.  Management indicated that the issue of bonus debentures of Rs 103bn to existing shareholders will be completed by Mar-15. The debentures will be treated as debt and interest on them will be allowed as pass through in the tariff. There will be no impact on core RoE but reported RoE can go up by ~90bps due to the issue of these debentures.  Ordering for Katwa (1,320MW) and Khargon (1,320MW) plants is being held up as company is waiting for environmental clearances. PLF based Incentive income was Rs 0.35bn during the quarter, and Rs 0.83bn during 9MFY15.  We retain Neutral with SOP based TP of Rs 157/sh, based on sum of 1.9x FY17E regulated equity, cash and equity portion of CWIP.


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