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NTPC: Lower fuel costs dent sales, aid margins - Views on News from Equitymaster
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NTPC: Lower fuel costs dent sales, aid margins
Feb 1, 2010

Performance summary
  • Net sales drop by 1% YoY during 3QFY10, seemingly due to passing of lower fuel costs to customers in the form of lower tariffs. Sales for 9mFY10 rise by 12% YoY.
  • Operating margins expand by 1.6% YoY during the quarter, largely on the back of lower fuel and staff costs (both as percentage of sales).
  • On the back of a 5% YoY growth in operating profits, net profits grow at a similar rate. Profits for 9mFY10 are higher by 10% YoY.

Financial performance snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 112,771 111,837 -0.8% 304,780 339,692 11.5%
Expenditure 80,685 78,185 -3.1% 223,000 242,146 8.6%
Operating profit (EBDITA) 32,086 33,653 4.9% 81,780 97,547 19.3%
Operating profit margin (%) 28.5% 30.1%   26.8% 28.7%  
Other income 8,513 7,791 -8.5% 23,133 22,964 -0.7%
Depreciation 5,590 6,614 18.3% 16,381 19,179 17.1%
Interest 5,076 3,418 -32.7% 14,558 13,271 -8.8%
Profit before tax 29,933 31,412 4.9% 73,973 88,060 19.0%
Tax 7,424 7,763 4.6% 13,094 20,955 60.0%
Profit after tax/(loss) 22,509 23,650 5.1% 60,880 67,106 10.2%
Net profit margin (%) 20.0% 21.1%   20.0% 19.8%  
No. of shares (m)       8,246.0 8,246.0  
Diluted earnings per share (Rs)*         10.7  
P/E ratio (x)*         19.6  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • NTPC’s sales declined by 1% YoY during 3QFY10. This was seemingly due to passing of lower fuel costs to customers in the form of lower tariffs. The company commissioned a 490 MW capacity plant at Dadri (UP) that took its total generation capacity to above 31,000 MW by the end of December 2009. As for 9mFY10, sales grew by 12% YoY, largely aided by new capacity coming on-stream.

  • NTPC recorded a 1.6% YoY improvement in its operating margins during 3QFY10. This was helped by lower fuel and staff costs. Fuel costs declined from 62.1% of sales in 3QFY09 to 60.5% in 3QFY10. Lower staff costs were because of lesser provision towards the sixth pay commission requirements.

  • Despite the decline in sales during 3QFY10, NTPC managed to grow its net profits by 5% YoY during the quarter. This was owing to improved operating margins and lower interest costs.

What to expect?
At the current price of Rs 210, the stock is trading at a multiple of 2.4 times our estimated FY12 book value per share. NTPC’s 9mFY10 numbers are fairly in line with our FY10 estimates. The company is on an aggressive capacity expansion and plans to spend massive sums of money on the same. For instance, capital expenditure in FY11 and FY12 is estimated at Rs 177 bn and Rs 240 bn respectively, which will be funded using a debt/equity ratio of 70/30. The company is also scouting for fuel sources (coal) abroad given the constraints it is facing from domestic resources. Overall, at the current valuations, we have a positive view on the stock.

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