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NTPC: Wage provisions hit bottomline - Views on News from Equitymaster

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NTPC: Wage provisions hit bottomline
Apr 11, 2008

NTPC has announced provisional results for FY08. The company has reported a 14% YoY and 13% YoY growth in standalone net sales and net profits during the fiscal. While the topline performance has almost been in line with our estimates, the net profits have been lower on account of impact of one-off items like provision for wage revision. During the year, the company declared interim dividend of Rs 2.7 (dividend yield of 1.5%). Key highlights
Capacity addition: NTPC added 1,740 MW of capacity during the fiscal, thus taking its total generation capacity to 29,144 MW, including 1,794 MW from joint ventures. However, this addition was lower when compared to the company’s earlier plans of installing 2,490 MW during the fiscal. We shall await more details from the company before commenting on the reasons for the shortfall.

New capacity addition (FY08)
  Capacity (MW)
Sipat-II (2x500 MW)-Unit IV 500
Kahalgaon-II, Phase-I (2x500 MW)-Unit VI 500
Capacity addition through JV (RGPPL, Dabhol) 740
Total capacity added during FY08 1,740
Source: Company

Power generation: NTPC generated 200 bn units (BUs) of electricity during FY08, which was higher by 6.5% YoY. This way, the company contributed 28.5% of India’s total electricity generated during the year, with just about 19% of the country’s total installed capacity, indicating better utilisation. The company’s coal based stations recorded higher ever plant load factor (PLF, or capacity utilisation) of 92.2% during the fiscal (89.4% during FY07).

Capital expenditure: NTPC incurred capex of Rs 86 bn during FY08 and added 1,740 MW of new capacity. Further, it has 16,930 MW of capacity under construction. For the current fiscal (FY09), the company is targeting a capex of Rs 136 bn. The management has reiterated its plans of taking the power generation capacity to over 50,000 MW by 2012 (end of eleventh five-year plan) and 75,000 MW by 2017 (end of twelfth plan).

For funding these expenditures, NTPC has tied up for loans worth Rs 220 bn from various domestic banks and financial institutions. The cumulative domestic borrowing up to March 31, 2008 was Rs 207 bn, including Rs 40 bn worth of bonds placed with the LIC.

New business initiatives: Here are some of the key initiatives taken by NTPC during FY08 to ramp up its manufacturing presence:

  • The company signed a joint venture (JV) agreement with Transformers and Electricals Kerala Ltd. (TELK). NTPC’s equity stake in this JV will be 44.6%.

  • It also signed a JV agreement with BHEL for taking up activities related to carrying out engineering, construction service and manufacturing of equipments in the field of power sector and infrastructure projects. The JV company shall be jointly owned by NTPC and BHEL on the basis of 50:50 equity participation.

  • The company signed an MoU with Bharat Forge Limited for setting up a new facility to take up manufacture of castings, forgings, fittings and high pressure piping required for power projects and other industries, and Balance of Plant (BOP) equipments for the power sector. The equity participation in the JV will be 49:51 by NTPC and Bharat Forge respectively.

What to expect?
At the current price of Rs 186, the stock is trading at a multiple of 2.3 times our estimated FY10 book value. While the FY08 provisional results are almost in line with our estimates, barring the bottomline figure, which has been impacted by a one-time provision on account of wage revision, we are worried about the pace of capacity expansion, which has been rather slower than expected. The management has not divulged much details of a lower capacity addition during the current fiscal vis-à-vis what it had earlier indicated. At this point in time, we maintain our view on the stock from a 2 to 3 years perspective.

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