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NTPC: Excess capacity taking a toll on performance - Views on News from Equitymaster
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NTPC: Excess capacity taking a toll on performance
Jun 9, 2015

NTPC declared results for the quarter and year ended March 2015. The company reported a revenue decline of 8% YoY during the quarter while profit before tax was down by 7% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues decline by 8% YoY
  • Unadjusted operating profits rise by 2% YoY as margins expand to 24.1%.
  • Lower other income, along with higher depreciation and interest charges lead to a profit before tax decline of 7% YoY.
  • Unadjusted profits decline by 5% YoY on the back of tax adjustments (related to earlier years).
  • During FY15, revenues grew by 2% YoY while profits were down by 6% YoY.
  • Board recommends final dividend of Rs 1.75 per equity share. Total dividend for the year comes to Rs 2.5, translating to a yield of about 1.8% at current levels.

Standalone financial performance
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 210,388 193,146 -8.2% 720,189 732,461 1.7%
Expenditure 164,832 146,655 -11.0% 542,112 571,605 5.4%
Operating profit (EBDITA) 45,556 46,491 2.1% 178,078 160,856 -9.7%
EBDITA margin (%) 21.7% 24.1%   24.7% 22.0%  
Other income 5,860 5,718 -2.4% 26,457 21,163 -20.0%
Depreciation 12,076 13,912 15.2% 41,422 49,117 18.6%
Interest 5,677 7,075 24.6% 24,066 27,436 14.0%
Profit before tax 33,663 31,222 -7.3% 139,047 105,467 -24.2%
Tax 2,727 1,782   29,299 2,558 -91.3%
Effective tax rate 8% 6%   21% 2%  
Profit after tax/(loss) 30,935 29,440 -4.8% 109,747 102,909 -6.2%
Net profit margin (%) 14.7% 15.2%   15.2% 14.0%  
No. of shares (m)         8,245.5  
Diluted earnings per share (Rs)*         12.5  
Price to earnings ratio (x)         11.2  
*based on trailing 12 months earnings

What has driven performance in 4QFY15?
  • NTPC's commercial generation declined by 1.3% YoY during the quarter. The company added capacity worth 1.3 GW over the last year. NTPC's coal based plant load factor (PLF) stood at 82.7% during the quarter while it stood at 80.23% for the full year. In the previous year, PLF stood at 81.5%.

    As for the PAF (plant availability factor) relating its coal based plants, the same came in at about 97% as compared to 91% in corresponding period last year.

    NTPC's unadjusted revenues declined by 8% YoY during the quarter, while profit before tax was down by 7% YoY. The lower tax during the quarter was due to the incidence of deferred tax asset during the quarter. As for FY15, revenues grew by 2% YoY while profits were down by 6% YoY.

  • While the company's management did not provide the adjusted figures, some of the key adjustments for this quarter include a Rs 700 write back in taxes, coupled with a Rs 2.4 bn income related to previous years.
What to expect?
At the current price of Rs 139, NTPC trades at about 1.15 times our estimated FY17 book value per share.

As per the company, the lower demand for power has been the key factor behind the poor performance. While concerns relating to fuel supply seem to have been largely resolved (the company's management stated that they are able to receive as much coal as they want), the key issue the company and the sector on the whole is facing is related to a slowdown in power demand which has been magnified by a strong capacity build up in recent times. As per the company, it lost nearly 43 bn units largely due to lower demand. This is essentially the additional business it could have had, had it not been for the constraints from the SEBs. Further, average PLFs for the entire sector stand at about 65%, indicating the excess capacity situation at the moment. Essentially, increased demand would provide some headroom for the company to grow. As for capacity addition, the same is expected at levels of about 2.5 GW for the next two years.

As for the legal tussle with CERC, the next hearing has been postponed to mid July 2015.

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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