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NTPC: Stable quarter - Views on News from Equitymaster

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NTPC: Stable quarter
Jan 31, 2014

National Thermal Power Corporation (NTPC) declared results for the third quarter and nine month period ended December 2013. The company reported a 19% YoY rise in net sales and 10% YoY rise in profits during the quarter. Here is our analysis of the results.

Performance summary
  • Net sales rose by 19% YoY during the quarter, while volumes came in lower by 1.8% YoY. Growth in adjusted revenues - for income relating to previous years as well as taxes recoverable - stands at 14% YoY.
  • Operating profits rose by 15.6% YoY. Margins contracted by 0.6% to 24.7% on the back higher employee costs (as percentage of sales).
  • Profit before tax growth came in at 11.5% YoY on the back of higher finance and depreciation charges. Net profits rose by 10% YoY during the quarter.
  • During 9mFY14, company revenues rose by 6% YoY while profits declined by over 4% YoY.
  • Board recommends dividend of Rs 4 per share, translating to a dividend yield of about 3.1%.
  • At the end of December 2013, NTPC's standalone installed capacity stood at 34,882 MW, as compared to last year's capacity of 33,872 MW. Total commercial capacity of the group stood at 40,356 MW.

Standalone financial performance
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 157,749 187,794 19.0% 478,545 506,646 5.9%
Expenditure 117,797 141,493 20.1% 360,045 376,604 4.6%
Operating profit (EBDITA) 39,952 46,301 15.9% 118,501 130,041 9.7%
EBDITA margin (%) 25.3% 24.7%   24.8% 25.7%  
Other income 7,546 7,747 2.7% 26,878 23,077 -14.1%
Depreciation 8,288 10,243 23.6% 23,755 29,346 23.5%
Interest 5,304 6,010 13.3% 13,332 18,389 37.9%
Profit before tax 33,907 37,795 11.5% 108,292 105,384 -2.7%
Tax 7,940 9,182 15.6% 25,914 26,572 2.5%
Effective tax rate 23% 24%   24% 25%  
Profit after tax/(loss) 25,968 28,613 10.2% 82,378 78,812 -4.3%
Net profit margin (%) 16.5% 15.2%   17.2% 15.6%  
No. of shares (m)         8,245.5  
Diluted earnings per share (Rs)*         14.9  
Price to earnings ratio (x)         8.7  
(*On a trailing 12-month basis)

What has driven performance in 9mFY14?
  • NTPC's standalone generation capacity at the end of December 2013 stood at 34,882 MW (same as preceding quarter). This is higher by 1,010 MW as compared to last year. The volumes sold during 9mFY14 remained flat, while the same came in lower by about 1.8% YoY during 3QFY14. NTPC's adjusted standalone revenues were higher by 14% YoY, indicating that the average tariff rates were higher as compared to last year.

  • NTPC's Plant Availability Factor (PAF) for its coal fired plants stood at 95.12% during the quarter as compared to 88.56% during corresponding quarter last year. The same was higher due to better coal availability. The Plant Load Factor (PLF, average capacity utilization) stood at 82.43% as compared to 84.08% last year (for its coal fired plants); the same was on the back of lower demand from SEBs. For gas power plants, the PAF and PLF stood at 99.83% (93.8% in 3QFY13) and 33.47% (58.83%) respectively; the same was on account of lower gas availability.

  • The volume of electricity generated stood at 59.1 bn units during 3QFY14 as compared to 60.15 bn units during the corresponding period last year.

  • NTPC's operating margins stood at 24.7% during 3QFY14, which is lower by 0.6% YoY. The increase was largely because of higher employee expenses (up 70% YoY in absolute terms). The same was on account of a Rs 3.5 bn payment towards pension scheme (for earlier period), thereby making it a one off-item.
What to expect?
At the current price of Rs 128, the stock is trading at a multiple of about 1.1 times our estimated FY16 book value per share. While this may appear cheap, we still await the outcome of the CERC's final draft on tariff regulations for the 5-year period ending 2019.

The key changes proposed in the draft include changing the mode of incentive to PLF rather than PAF, as well as no grossing up of tax, which could impact revenues and profits. While NTPC and other power companies have shared their views and concerns with the CERC on the proposed draft, it remains to be seen what the final outcome would be. We maintain our hold view on the stock until then.

We would like to remind subscribers that they should refrain from over exposure to a stock no matter how much of a low risk proposition it may seem. As such, do ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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