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NTPC: Good operating performance - Views on News from Equitymaster
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NTPC: Good operating performance
Feb 10, 2015

NTPC declared results for the quarter ended December 2014. The company reported flat revenues, while unadjusted profits rose by 7% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues remain flat during the quarter.
  • Operating profits remain at similar levels as well. Margin at 24.7% during the current year (same as previous year).
  • Lower other income, along with higher depreciation charges leads to a profit before tax decline of 16% YoY.
  • Unadjusted profits rise by 7% YoY on the back of tax adjustments (related to earlier years).
  • Board announced interim dividend of Rs 0.75 (yield of about 0.54%)

Standalone financial performance
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Net sales 188,371 188,581 0.1% 509,801 539,315 5.8%
Expenditure 141,843 141,984 0.1% 377,280 424,950 12.6%
Operating profit (EBDITA) 46,529 46,597 0.1% 132,521 114,365 -13.7%
EBDITA margin (%) 24.7% 24.7%   26.0% 21.2%  
Other income 7,519 4,813 -36.0% 20,597 15,445 -25.0%
Depreciation 10,243 12,534 22.4% 29,346 35,205 20.0%
Interest 6,010 7,008 16.6% 18,389 20,361 10.7%
Profit before tax 37,795 31,868 -15.7% 105,384 74,244 -29.5%
Tax 9,182 1,128   26,572 776 -97.1%
Effective tax rate 24% 4%   25% 1%  
Profit after tax/(loss) 28,613 30,740 7.4% 78,812 73,468 -6.8%
Net profit margin (%) 15.2% 16.3%   15.5% 13.6%  
No. of shares (m)         8,245.5  
Diluted earnings per share (Rs)*         12.7  
Price to earnings ratio (x)         11.0  
*On a trailing 12-month basis

What has driven performance in 3QFY15?
  • NTPC's commercial generation rose by 2.02% YoY. Capacity added during the year was about 2.26 GW over the last year. NTPC's coal based plant load factor (PLF) stood at 80.8% during the quarter. As compared to the preceding quarter (73.2%), there has been a substantial improvement in the quarter gone by. Last year, PLF stood at 82.4%.

  • As for the PAF (plant availability factor) relating its coal based plants, the same came in at about 91% as compared to 95% in corresponding period last year.

  • NTPC's revenues and profits came in flat as margins were intact as compared to the previous year. There was however a drastic improvement in operating performance as compared to the preceding quarter. This was due to improved plant efficiencies. Profit before tax fell by about 16% YoY mainly due to lower other income.

  • During 9mFY15, the company's margins have largely remained subdued due to the change in regulations as well as lower efficiencies as compared to last year. PAF (coal) for instance during 9mFY15 stood at 85.7% as compared to 89.18% in corresponding period last year. PAF for gas based plants stood at 90.77% during this period as compared to 93.79% last year.

  • While the company's management did not provide the adjusted figures, some of the key adjustments for this quarter include Rs 1.2 bn (included in sales for recognition of previous year's revenues), Rs -102 m on account of income tax refundable to/ recoverable from beneficiaries; and Rs 295 m on account of deferred tax materialized which needs to be recovered from beneficiaries.
What to expect?

At the current price of Rs 139, NTPC trades at about 1.14 times our estimated FY17 book value per share.

While the company's performance did improve in the quarter gone by, we would like to wait for a while before making any changes to our estimates. NTPC has been criticized for slowing and delay in expansion plans. That along with the lower efficiencies of plants in recent times has added to the woes. The same has however been the case due to fuel supply issues coupled with plant shut downs (due to maintenance). As for the coal supply problems, the company has been working on mitigating this risk by importing coal as well as sourcing internally.

Given the company's strong balance sheet, relatively high dividend yield (currently stands at over 4%) as well as the subdued sentiments (as captured by valuations) of the overall sector, we believe the downside risks seem to be capped. Key factors to look out for are the capacity expansion plans and the improvement in plant effendis; not to mention the uncertain outcome of the legal tussle with CERC.

We maintain our hold view on the stock from a long term perspective.

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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