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NTPC: The impact of change in norms continues... - Views on News from Equitymaster

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NTPC: The impact of change in norms continues...

Nov 5, 2014

NTPC declared results for the quarter ended September 2014. The company reported a 2% YoY growth in revenues while unadjusted profits declined by 17% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues rise by 2% YoY during the quarter ended September 2014.
  • Operating profits decline by 24% YoY, while profit before tax falls by 41% YoY
  • Lower other income, along with higher depreciation charges leads to a sharp fall in profits before tax.
  • Unadjusted profits decline by 17%. However, when adjusted for one off items (recurring profits), the profit decline stands at 7% YoY. The decline is largely a factor of change in tariff rules coupled with lower incentives (due to linking norms with PLF as compared to PAF earlier).

Standalone financial performance
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 164,489  167,366 1.7% 321,430 350,734 9.1%
Expenditure 121,802  134,943 10.8% 235,437 282,966 20.2%
Operating profit (EBDITA) 42,687 32,423 -24.0% 85,992 67,768 -21.2%
EBDITA margin (%) 26.0% 19.4%   26.8% 19.3%  
Other income 6,272 5,307 -15.4% 13,079 10,633 -18.7%
Depreciation 9,679 11,516 19.0% 19,103 22,671 18.7%
Interest 6,205 6,674 7.6% 12,379 13,353 7.9%
Profit before tax 33,075 19,540 -40.9% 67,589 42,377 -37.3%
Tax 8,146 (1,176)   17,390 (352) -102.0%
Effective tax rate 25% -6%   26% -1%  
Profit after tax/(loss) 24,929 20,716 -16.9% 50,199 42,728 -14.9%
Net profit margin (%) 15.2% 12.4%   15.6% 12.2%  
No. of shares (m)         8,245.5  
Diluted earnings per share (Rs)*         12.4  
Price to earnings ratio (x)         11.9  
(*On a trailing 12-month basis)

What has driven performance in 2QFY15?
  • During the quarter gone by, the company's commercial generation rose by 0.9% YoY - despite an addition of about 1.5 GW of capacity. As per the management, this was largely on account of maintenance of certain plants. NTPC's coal based plant availability factor (PAF) stood at 76.8% during the quarter as compared to 87.5% in corresponding quarter last year - lower due to the same reason coupled with fuel availability issues. Overall plant load factor (PLF) for this quarter stood at about 62.3% as compared to 60.3% in corresponding quarter last year.

  • NTPC's unadjusted revenues were up by 2% YoY during the quarter led by poor rise in gross generation levels. The company's profits were also impacted by the lower PAF and PLF levels at certain plants, which impacted the fixed cost recovery and incentives thereby impacting the overall financial performance of the quarter. As seen in the quarterly performance of the previous quarter, the impact was mainly due to some of the older plants not being able to meet the new CERC norms.

  • As per the management, the adjusted profit after tax stands at Rs 18 bn as compared to 19.47 bn in the preceding quarter i.e. the quarter ended June 2014. Key adjustments include those related to income tax and deferred tax adjustments.
What to expect?
At the current price of Rs 148, NTPC is trading at about 1.22 times our estimated FY17 book value per share.

The management is looking to increase the amount of imported coal in the current year to meet its requirements. For the long term, the focus would be to reduce its coal supply issues by making strategic investments in coal assets abroad, considering that coal prices have declined substantially in the recent past. The company has recently invited bids for doing the same.

Speaking about its petition against the new tariff rules set by the CERC, the management stated that the next hearing related to the same is on 5th December. During the quarter, PLF based incentive income stood at Rs 0.4 bn as compared to Rs 1.4 bn in the quarter ended June 2014.

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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