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NTPC: Growth on track - Views on News from Equitymaster
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NTPC: Growth on track
Jan 31, 2008

Performance summary
  • Sales grow 9% YoY in 3QFY08, 11% YoY in 9mFY08.

  • Operating margins expand by 0.9% during the quarter, owing to lower fuel and other costs (both as percentage of sales).

  • Net profits decline by 15% YoY during 3QFY08, grow 18% YoY during 9mFY08.

  • Lower other income and higher interest costs (due to forex adjustments) impact profits during the quarter. Effective tax rate increases to 35% in 3QFY08 from 20% in 3QFY07.

  • Board recommends dividend of Rs 2.7 per share for FY07 (dividend yield of 1.4%).

Financial performance snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Sales 85,259 93,308 9.4% 237,447 263,065 10.8%
Expenditure 58,873 63,617 8.1% 160,179 179,048 11.8%
Operating profit (EBDITA) 26,386 29,691 12.5% 77,268 84,017 8.7%
Operating profit margin (%) 30.9% 31.8%   32.5% 31.9%  
Other income 7,851 7,624 -2.9% 20,893 22,237 6.4%
Interest 2,807 4,665 66.2% 12,675 9,907 -21.8%
Depreciation 5,138 5,266 2.5% 14,673 15,314 4.4%
Profit before tax 26,292 27,384 4.2% 70,813 81,033 14.4%
Tax 5,259 9,585 82.3% 19,513 20,280 3.9%
Profit after tax/(loss) 21,033 17,799 -15.4% 51,300 60,753 18.4%
Adjusted profit after tax/(loss)# 17,414 19,899 14.3% 47,082 53,923 14.5%
Net profit margin (%) 24.7% 19.1%   21.6% 23.1%  
No. of shares         8,246.0  
Diluted (unadjusted) EPS (Rs)*         9.5  
P/E ratio (x)*         21.5  
* On a trailing 12 months basis

What has driven performance in 2QFY08?
  • The 9% YoY growth in NTPCˇ¦s 3QFY08 topline was largely driven by growth in volume sales as also improved realisations. While volume sales of electricity grew by 3.9% YoY, electricity tariffs improved by almost 5% YoY. Higher sales were a consequence of a 3% YoY rise in generation as the company has added almost 1,500 MW of capacity during the past 12 months and the utilisation levels of coal based plants have also improved. At the end of December 2007, the NTPCˇ¦s generation capacity stood at 26,850 MW. Its coal based plants operated at a PLF (plant load factor) of 93.2% during 3QFY08, up from 91.1% in 3QFY07. However, the PLF of gas based plants declined from 77.2% to 63.8% owing to low supply of gas and lower demand for power generated by using liquid fuels like naphtha (as this power is expensive than that generated using gas).

    Of the 2,490 MW that NTPC has plans to install during the current fiscal, 1,240 MW has already been installed. The remaining capacity is likely to get commissioned in the current quarter. Further, the management has outlined a capex of Rs 135 bn to set up 2,670 MW capacity during FY09. It has also indicated of having placed orders for 17,000 MW of capacity out of the total 22,000 MW envisaged during the eleventh five-year plan (2007-12).

  • NTPC recorded a 0.9% expansion in its operating margins during 2QFY08. This was owing to lower fuel costs. These costs declined from 61.4% of sales in 3QFY07 to 58.7% in 3QFY08. However, the gain in margins was pared on account of higher staff costs, due to revision in staff wages. „X Despite the expansion in operating margins during 3QFY08, NTPCˇ¦s unadjusted net profits declined by 15% YoY, owing to a sharp spike in taxes and lower other income. After adjusting profits for previous year sales, exchange rate variations, prior period items, wage provisions and income tax assessments, the same have grown by 14% YoY during 3QFY08 and 15% YoY during 9mFY08.

What to expect?
At the current price of Rs 204, the stock is trading at a multiple of 2.5 times our estimated FY10 book value. We maintain our view on the stock from a long-term perspective. We shall soon update our research report on the company.

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