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NTPC: Higher fuel costs dent profits
Feb 1, 2011

NTPC has declared its 3QFY11 results. The company has reported a 19% YoY growth in sales while net profit has been almost flat. Here is our analysis of the results.

Performance summary
  • Net sales grow by 19% YoY during 3QFY11.
  • Operating margins decline to 30.8% during the quarter, from 33.2% in 3QFY10. This is largely on account of higher fuel costs (as percentage of sales).
  • Led by weaker operating margins, lower other income, and higher interest charges, net profit remains flat at 3QFY10 levels.
  • For 9mFY11, while sales grow by 19% YoY, net profits are down 6% YoY.
  • Board has recommended an interim dividend of Rs 3 per share (dividend yield of 1.6%).


Financial performance snapshot
(Rs m) 3QFY10  3QFY11  Change 9mFY10  9mFY11  Change
Sales    117,077     139,638 19.3%    354,868   423,803 19.4%
Expenditure       78,169        96,635 23.6%    242,116   308,633 27.5%
Operating profit (EBDITA)      38,907       43,003 10.5%    112,752     115,170 2.1%
Operating profit margin (%) 33.2% 30.8%   31.8% 27.2%  
Other income         2,537          2,021 -20.3%         7,758         6,825 -12.0%
Depreciation         6,614          5,986 -9.5%       19,179      17,876 -6.8%
Interest         3,418          4,932 44.3%       13,271       16,191 22.0%
Profit before tax       31,412        34,106 8.6%      88,060      87,928 -0.2%
Tax         7,763        10,392 33.9%       20,955      24,721 18.0%
Profit after tax/(loss)       23,650        23,715 0.3%      67,106      63,208 -5.8%
Net profit margin (%) 20.2% 17.0%   18.9% 14.9%  
No. of shares (m)           8,246.0     8,245.8  
Diluted earnings per share (Rs)*         10.1  
P/E ratio (x)*         18.4  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • NTPC grew its sales by 19% YoY during 3QFY11. This was largely a result of improvement in electricity tariffs, as the company volume sales did not have much to cheer about. Volumes grew by a meager 0.8% YoY during the quarter. This was led by an equivalent weak growth in power generation. The management has attributed planned plant shutdown due to maintenance and some restrictions from the power grid as two key reasons for the slow growth in power generation.

    NTPC also faced some fuel issues. This was seen in the decline in its capacity utilisation. While the utilisation (measured by PLF or plant load factor) for coal plants dropped from 90.5% in 3QFY10 to 87.2% in 3QFY11, PLF for gas plants declined from 73.6% to 66.3%. In order to meet some of its future fuel requirements, the company is looking to produce 45 m tonne of coal from its own mines by 2017. While the plans look grand, as they have always been for NTPC, it's the execution that will count.

  • NTPC's operating margins declined to 30.8% during the quarter, largely on account of higher fuel costs (as percentage of sales). These costs amounted to 59.7% of the quarter's net sales, as against 57.8% in 3QFY10.

  • Despite a decent growth in net sales, NTPC's net profits were almost flat, same as 3QFY10 levels. Weaker operating margins and higher interest costs (up 44% YoY) played a role in pressurizing the company's profits during the quarter. The company also suffered on account of higher taxes, as its effective tax rate jumped to 30.5% during the quarter, from 24.7% during 3QFY10.

What to expect?
At the current price of Rs 185, the stock is trading at a multiple of 2 times our estimated FY13 book value per share. NTPC's 9mFY11 performance has been in line with our full year estimates. We thus maintain our view on the stock from a 2 years perspective.

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