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NTPC: Good growth on the revenue front - Views on News from Equitymaster
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NTPC: Good growth on the revenue front
May 16, 2014 | Updated on May 23, 2014

NTPC declared results for the quarter and year ended March 2014. The company reported a 21% YoY rise in total income and 29% YoY decline in profits during the quarter.

Performance summary
  • Total income (not adjusted) increases by 21% YoY during the quarter ended March 2014, while volumes rise by 3.6% YoY.
  • Operating profits decline by 5.2% YoY. Margins contracted by 5% YoY to 21.6% on the back higher fuel costs (as percentage of sales).
  • Profit before tax declined by 41.5% YoY. On adjusting for extraordinary items, profit before tax is lower by 17% YoY.
  • Net profits decline by 29% YoY (not adjusted) during the quarter. Tax payout falls on a YoY basis on account of adjustments related to earlier years.
  • During FY14, NTPC's unadjusted total income rises by 10% YoY, while profits decline by 13% YoY.
  • At the end of March 2014, NTPC's standalone installed capacity stood at 36,447 MW, as compared to last year's capacity of 34,882 MW. Total commercial capacity of the group stood at 43,108 MW.
  • Board recommends final dividend of Rs 1.75 per share, which is in addition to the interim dividend of Rs 4 per share (dividend yield of 4.3%).

Standalone financial performance
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 173,668 210,388 21.1% 657,370 720,189 9.6%
Expenditure 125,727 164,963 31.2% 486,402 542,544 11.5%
Operating profit (EBDITA) 47,941 45,426 -5.2% 170,969 177,645 3.9%
EBDITA margin (%) 27.6% 21.6%   26.0% 24.7%  
Other income 8,837 5,990 -32.2% 31,188 26,889 -13.8%
Depreciation 10,213 12,076 18.3% 33,968 41,422 21.9%
Interest 5,912 5,677 -4.0% 19,244 24,066 25.1%
Extraordinary items 16,841 -   16,841 -  
Profit before tax 57,495 33,663 -41.5% 165,786 139,047 -16.1%
Tax 13,679 2,727 -80.1% 39,592 29,299 -26.0%
Effective tax rate 24% 8%   24% 21%  
Profit after tax/(loss) 43,816 30,935 -29.4% 126,194 109,747 -13.0%
Net profit margin (%) 25.2% 14.7%   19.2% 15.2%  
No. of shares (m)         8,245.5  
Diluted earnings per share (Rs)*         13.3  
Price to earnings ratio (x)         10.1  
(*On a trailing 12-month basis)

What has driven performance in FY14?
  • NTPC's standalone generation capacity at the end of March 2014 stood at 36,447 MW. This is higher by 1,565 MW as compared to March 2013. The volumes sold during FY14 were up barely 0.7%, while the same came in higher by about 2% YoY during 4QFY14. NTPC's adjusted standalone revenues were higher by 10% YoY, indicating that the average tariff rates were higher as compared to last year. The average tariff for FY14 stood at Rs 3.3 per unit.

  • NTPC's Plant Availability Factor (PAF) for its coal fired plants stood at 91.7% during FY14 as compared to 87.6% during FY13. The same was higher due to better coal availability. The Plant Load Factor (PLF, average capacity utilization) stood at 81.5% as compared to 83% 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 95.2% (93.1% in 3QFY13) and 35.7% (55.9%) respectively; the same was on account of lower gas availability.

  • The volume of electricity generated stood at 233.2 bn units during FY14 as compared to 232 bn units during the corresponding period last year (up 0.5% YoY).

  • NTPC's operating margins stood at 24.7% during FY14, which is lower by 1.3% YoY. The fall was largely because of higher employee expenses (up 70% YoY in absolute terms). The same was on account of Rs 3.5 bn payment made in 3QFY14 towards pension scheme (from January 2007 to March 2013), thereby making it a one off-item.
What to expect?
At the current price of 162, the stock is trading at a P/BV multiple of 1.3 times our estimated FY16 book value. 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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