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NTPC: Higher tariffs save the day - Views on News from Equitymaster

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NTPC: Higher tariffs save the day
Aug 12, 2011

NTPC has declared its results for first quarter of financial year 2011-12 (1QFY12). The company has reported a 10% YoY growth and 13% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 10% YoY in 1QFY12 on the back of slower growth in generation. The total generation was up 1% in FY11 to 220,536 BUs.
  • Operating margins decline to 20% from 22% in 1QFY11. This is largely on account of higher fuel costs (as percentage of sales).
  • Despite weaker operating margins, higher other income and lower depreciation charges cushioned the net profit margins.
  • The company had capacity of 34,854 MW at the end of June 2011 and is targeting capacity addition of 4,320 MW in FY12.

Standalone financial snapshot
(Rs m) 1QFY11 1QFY12 Change
Net sales 129,445 141,715 9.5%
Expenditure 101,389 113,050 11.5%
Operating profit (EBDITA) 28,056 28,665 2.2%
EBDITA margin (%) 21.7% 20.2%  
Other income 5,717 9,963 74.3%
Depreciation 6,827 6,413 -6.1%
Interest 3,415 3,743 9.6%
Profit before tax 23,531 28,472 21.0%
Tax 5,113 7,714  
Effective tax rate 22% 27%  
Profit after tax/(loss) 18,418 20,758 12.7%
Net profit margin (%) 14.2% 14.6%  
No. of shares (m)   8,245.4  
Diluted earnings per share (Rs)*   11.7  
Price to earnings ratio (x)   15.2  
(*On a trailing 12-month basis)

What has driven performance in 1QFY12?
  • NTPC grew its sales by only 10% YoY during 1QFY12. This was largely a result of improvement in electricity tariffs, as the company volume sales did not have much to cheer about. The management has attributed planned plant shutdown due to maintenance and some restrictions from the power grid as two key reasons for the slow growth in power generation. The company had capacity of 34,854 MW at the end of June 2011 and is targeting capacity addition of 4,320 MW in FY12. Coal linkages were received for 9 new projects with a total capacity of 10,920 MW. Further it has a gas supply agreement with GAIL for 14.5 MMSCMD of gas (10.7 MMSCMD recived in 1QFY12).

    NTPC received 30.6 MT of domestic coal from Coal India in the first quarter of FY12 against an availability of 115 MT for full year FY12. The total coal supply received in FY11 was 137.5 MT. It also plans to import 23 MT of coal in FY12 against an import of 14 MT in FY11. The impact of higher fuel prices was seen in the decline in its capacity utilisation. While the utilisation (measured by PLF or plant load factor) for coal plants dropped from 90.1% in 1QFY11 to 89.9% in 1QFY12, PLF for gas plants improved from 85.9% to 89.8%. In order to meet some of its future fuel requirements, the company is looking to produce 45 m tonne of coal from its own mines by 2017. Concerns over the execution of the plan however remain undiluted.

  • NTPC's operating margins declined to 20% during 1QFY12, largely on account of higher fuel costs (as percentage of sales). These costs amounted to 69% of the net sales, as against 67% in 1QFY11.

  • Despite a fall in operating margins, NTPC's net profits grew by 13% YoY in 1QFY12 due to higher other income and lower depreciation charges.

  • NTPC had debt to equity of 0.6 times and interest coverage ratio of 2.6 times making it reasonably resilient to rise in interest costs.

  • Average cost of NTPCs power was Rs 2.77 kwh in 1QFY12 (2.63 kwh in FY11). However, the receipt of dues hinges on the health of State Electricity Boards (SEBs).

What to expect?
At the current price of Rs 175, the stock is trading at a multiple of 1.7 times our estimated FY14 book value per share. The company is targeting become a 1,28,000 MW by 2032 with 28% capacity from non-fossil sources. NTPC’s share in country’s generation was 27.4% in 2010-11, with 17.75% of the national capacity. It has planned capex of Rs 264 bn for FY12. At the current valuations we reiterate our positive view on the stock, despite the concerns on the fuel linkages and execution front.

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