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NTPC: Higher fuel costs dent margins - Views on News from Equitymaster
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NTPC: Higher fuel costs dent margins
Jan 27, 2009

Performance summary
  • Net sales grow by 21% YoY during 3QFY09, 16% YoY during 9mFY09.
  • Operating margins contract during both the periods under consideration, largely on account of higher fuel costs.
  • Net profits grow 27% YoY during the quarter, duly helped by a lower tax outgo on account of a deferred tax credit. Profit for the nine-month period at almost similar levels as last year.
  • Announces dividend of Rs 2.8 per share (dividend yield of 1.5%).

Financial performance snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Sales 93,309 112,771 20.9% 263,065 304,780 15.9%
Expenditure 63,616 80,685 26.8% 179,047 223,000 24.5%
Operating profit (EBDITA) 29,693 32,086 8.1% 84,018 81,780 -2.7%
Operating profit margin (%) 31.8% 28.5% 31.9% 26.8%
Other income 7,624 8,513 11.7% 22,237 23,133 4.0%
Depreciation 5,266 5,590 6.2% 15,314 16,381 7.0%
Interest 4,665 5,076 8.8% 9,907 14,558 47.0%
Profit before tax 27,385 29,933 9.3% 81,033 73,973 -8.7%
Tax 9,586 7,424 -22.6% 20,280 13,094 -35.4%
Profit after tax/(loss) 17,799 22,509 26.5% 60,753 60,880 0.2%
Net profit margin (%) 19.1% 20.0% 23.1% 20.0%
No. of shares (m) 8,246.0 8,246.0
Diluted earnings per share (Rs)* 9.0
P/E ratio (x)* 21.1
* On a trailing 12-months basis

What has driven performance in 3QFY09?
  • NTPC grew its sales by 21% YoY during 3QFY09. This was aided by a 3.6% YoY increase in generation, largely due to capacity additions of 500 MW each at Sipat and Kahalgaon. The company generated 52.5 bn units of electricity during the quarter, as compared to 50.7 bn units in 3QFY08. NTPC’s power generation would have been higher during the quarter but for a decline in the PLF (plant load factor, or capacity utilisation) of its coal based plants. The PLF came down by 1.8% YoY (to 91.4%) during the quarter on account of planned maintenance of these plants. The PLF of gas based stations however increased by 5.1% (to 68.9%) owing to a greater use of LNG (purchased in the spot market) and naphtha.

  • NTPC’s operating margins contracted by 3.3% YoY during 3QFY09. This was largely on account of higher fuel costs, as the same increased to 62.1% in 3QFY09, from 58.7% in 3QFY08. The management has attributed this to higher YoY prices of coal, oil, and naphtha, as these rose by 11%, 43%, and 27% respectively during the quarter. Higher provision for employee costs also impacted operating margins during the quarter.

  • NTPC managed a 27% YoY growth in net profits during the quarter, which was aided by lower provision for income tax.

What to expect?
At the current price of Rs 176, the stock is trading at a multiple of 2.1 times our estimated FY11 book value. The company’s nine-month performance has been in line with our estimates. As such, we maintain a positive view on the stock from a 2 to 3 years perspective.

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