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NTPC: Lower costs aid margins
May 18, 2010

NTPC declared its FY10 results. The company has reported 9% YoY growth in sales while its net profits have grown by 6% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 5% YoY during 4QFY10, 9% YoY during FY10. Reported FY10 sales lower by 1% as compared to our estimates.
  • Operating margins expand to 29.7% during FY10, helped by lower fuel and staff costs (both as percentage of sales).
  • Other income declines owing to lower interest income - impacts net profits that grow at a slower pace (6% YoY during FY10) as compared to the growth in sales.
  • Recommends a final dividend of Rs 0.80 per share. Total dividend (including interim dividend) for FY10 is Rs 3.80 per share (dividend yield of 3.7%).


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net Sales   121,877       127,315 4.5%       440,994    482,213 9.3%
Expenditure     92,259         96,877 5.0%       315,259    339,022 7.5%
Operating profit (EBITDA)     29,618         30,439 2.8%       125,735    143,191 13.9%
Operating profit margin (%) 24.3% 23.9%   28.5% 29.7%  
Other income        2,671            2,495 -6.6%          11,467      10,253 -10.6%
Depreciation        7,264            7,322 0.8%          23,645      26,501 12.1%
Interest        5,404            4,818 -10.8%          19,962      18,089 -9.4%
Profit before tax     19,621         20,794 6.0%          93,595    108,855 16.3%
Tax      (1,512)               618 -140.9%          11,582      21,573 86.3%
Profit after tax/(loss)     21,134         20,177 -4.5%          82,013      87,282 6.4%
Net profit margin (%) 17.3% 15.8%   18.6% 18.1%  
No. of shares (m)               8,246.0     8,245.8  
Diluted earnings per share (Rs)                       9.9           10.6  
P/E ratio (x)         19.2  

What has driven performance in FY10?
  • The 9% YoY growth in NTPC’s FY10 sales was aided by a 6% YoY growth in volume sales of electricity and 3% YoY improvement in realisation (tariff per unit sold). Higher volume sales were a result of the 6% YoY growth in the company’s power generation. This stood at 218 bn units (BU) in FY10, as compared to 206 BU in FY09. Higher generation was helped by an improvement in the plant load factor (PLF or capacity utilisation) of the company’s gas based plants. PLF for the same stood at 78.4% in FY10 as compared to 67.1% in FY09. As for the company’s coal based plants, PLF declined marginally to 90.8%, from 91.1% in FY09.

  • NTPC’s operating margins expanded to 29.7% during FY10, helped by lower fuel and staff costs (both as percentage of sales). As per the management, the decline in fuel costs was owing to a higher share of imported coal, which gave the company better fuel efficiency.

  • Despite a 14% YoY growth in operating profits, NTPC managed a just 6% YoY growth in its net profits during FY10. Profits were mainly impacted by lower other income, including other operating income, which was lower by nearly Rs 4 bn. This was mainly due to lower interest income with maturing of government bonds held by the company.

What to expect?
At the current price of Rs 202, the stock is trading at a multiple of 2.3 times our estimated FY12 book value per share. NTPC’s FY10 performance is almost in line with our expectations. This includes the fact that, in line with our estimates, the company has also set up lesser capacity (1,490 MW in FY10) than earlier planned (3,300 MW).

Overall, the near-term outlook for the company remains weak given that challenges it is facing, like inadequate coal supply. Over the long run, we see execution of planned capacities as the biggest challenge. The company is currently working on 17,800 MW of projects that are under various stages of construction. We maintain our view on the stock from a 2-3 years perspective.

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