1. business and industrial

31 October 2014
2QFY15 Results Update | Sector: Utilities
NTPC
BSE SENSEX
27,866
Bloomberg
S&P CNX
8,322
NTPC IN
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
8,245.5
1,236/20.2
169/111
1, 6, 12 Rel. Per (%)
3/7/-31
Financials & Valuation (INR Billion)
Y/E MAR
2015E 2016E 2017E
Net Sales
723.9
734.1
822.7
EBITDA
148.4
166.4
205.6
Adj PAT
87.3
101.0
121.5
EPS (INR)
10.0
12.3
14.7
Gr. (%)
-17
23
20
BV/Sh.(INR)
110
116
124
RoE (%)
9.9
10.8
12.2
RoCE (%)
P/E (x)
P/BV (x)
6.5
7.1
8.4
15.0
12.2
10.2
1.4
1.3
1.2
CMP: INR150
TP: INR177
Buy
2QFY15 adjusted PAT in-line with estimates: NTPC reported revenue of INR166b,
up 1.9% YoY but lower than our estimate of INR172b. Similarly, EBIDTA stood at
INR31b, below estimate of INR37b. Lower revenue and EBIDTA was owing to lower tax
recovery, vs our estimate led by tax refunds. Reported PAT includes prior period
revenue of INR901m, reversal of excess depreciation of INR2b, net adjustment of tax
refund (INR6b) and prior period tax (INR5.6b). Adjusted PAT stood at INR18b, largely
in-line with our estimate of INR19b.
Operational performance muted owing to seasonality: For 2QFY15, generation
stood at 55.5BUs up 1.7% YoY led by planned maintenance shutdown during the
quarter. 2Q is seasonally weak quarter owing to higher hydro generation and thus,
annual overhaul of equipment is taken during the quarter. Generation from coal based
projects grew by 1.4% YoY to 52.4BUs. Gas plant generation witnessed robust growth
of 7.8% YoY at 3.0BUs. PLF for coal power projects witnessed 270bps decline in
2QFY15, while PAF was lower by ~10ppt. Coal materialization levels stood at 92%.
Key takeaways from concall: 1) Hearing on regulation in HC deferred till 5th
December 2014, 2) Capacity addition guidance of 1.8W in FY15E, 3) Investment
approval granted for Ramam HEP (3*40MW) and Tanda project granted during the
quarter, 4) 21m tons of target import for FY15E, 8.5m tons already imported.
Valuations and view: We expect NTPC to report net profit of INR82.4b in FY15E
(down 17% YoY) and INR101b in FY16E (up 23% YoY). NTPC trades at PER of 12.2x and
P/BV of 1.3x (RoE 10.8%) on FY16E basis. Maintain Buy.
Nalin Bhatt (NalinBhatt@MotilalOswal.com); +91 22 3982 5429
Mihir Shah (Mihir.Shah@MotilalOswal.com); +91 22 3089 6693
Investors are advised to refer through disclosures made at the end of the Research Report.
NTPC
2QFY15 adjusted PAT in-line with estimate



NTPC reported 2QFY15 revenues of INR166b (up 1.9% YoY), led primarily by
generation growth (up 1% YoY) and higher fuel cost at INR114b (up 13% YoY).
Fuel cost per unit on reported basis stood at INR2.22/unit (vs INR2.00/unit in
2QFY14).
EBIDTA for the quarter stood at INR31b, vs our estimate of INR37b. Reported
number however includes prior period revenue of INR901m, excess depreciation
of INR2b netted of from other expenses as well as income tax refund of INR6b.
Given treatment for these one-off items, the EBIDTA is INR34b broadly in-line
with our forecast. Other income was lower at INR6.9b vs estimate of INR7.3b.
PAT for the quarter was INR22b, vs our estimate of INR19b. Reported number
however includes reversal of tax relating to earlier years of INR5.6b, in addition
to the one-off items mentioned above. PAT adjusted for these non-recurring
items works out to INR18.1b against estimate of INR19b.
Operational performance muted owing to seasonality



For 2QFY15, generation stood at 55.5BUs up 1.7% YoY led by planned
maintenance shutdown during the quarter. Generation from coal based projects
grew by 1.4% YoY to 52.4BUs. Gas plant generation witnessed robust growth of
7.8% YoY at 3.0BUs.
Average PLF for coal projects stood at 73.2% in 2QFY15, vs 75.9% YoY and 84.3%
QoQ. The gas based PLF stood at 33.4% v/s 31.8% in 2QFY14 and 39.8% QoQ.
PAF for the coal projects stood at 76.79% (vs 87.51% YoY) and gas projects at
89.07% (vs 87.12% YoY). Materialization levels for coal stood at 92%.
Exhibit 1: Coal based generation growth muted
Coal Gen (BUs)
8%
7%
3%
2%
-2%0%
Gr (% YoY)
10%
9%
5%
5%
4%
0%
Gas Gen (BUs)
12%
2%
-3
1%
-8
-20
-1
-1
-19
6
3
-11
-3%
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY14
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
48 52 49 47 49 51 49 45 50 54 53 48 55 57 53 52 56 59 60 52
Gr (% YoY)
8%
-6
-16
-37
-15
-6
-35-45-43
6.46.76.85.45.96.65.55.46.35.95.75.15.23.73.72.83.03.13.53.0
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY14
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
1%
6%
Exhibit 2: Gas based generation looked up
99
93
86
92
91
93
98
91
90
90
86
92
94
96
96
97
90
90
83
92
85
94
95
99
88
93
80
90
89
90
93
96
85
94
88
87
95
100
100
100
89
90
77
89
99
93
86
92
91
93
98
91
90
90
86
92
94
96
96
97
90
90
83
92
85
94
95
99
88
93
80
90
89
90
93
96
85
94
88
87
95
100
100
100
89
90
77
89
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
Source: MOSL, Company
Exhibit 4: PLF for coal projects declined (%)
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
Source: MOSL, Company
Exhibit 3: PAF for gas projects remained robust (%)
Thermal - PAF
Gas - PAF
Source: MOSL, Company
31 October 2014
Thermal - PAF
Gas - PAF
Source: MOSL, Company
2
NTPC
Key takeaways from concall






The hearing on the regulation contested by NTPC is now lined up on 5th
December 2014
Management highlighted that NTPC can get mines through both E-auction and
nomination route. However, the clarity on payment of reserve price or not is still
not available.
Investment approval granted for Ramam HEP (3*40MW) and Tanda project
during the quarter and feasibility report approved for 1.6GW (2*800MW)
project in Telangana.
21m tons of target import for FY15E, 8.5m tons already received in YTDFY15.
There exists financial charge under recovery on few projects as at 1HFY15 owing
to maintenance shutdown (leading to lower PAF). However, NTPC is confident of
attaining full FC on all projects by year end as FC recovery is linked to yearly PAF.
FY15 capacity addition target is 1,800MW.
Valuations and view


31 October 2014
We expect NTPC to report net profit of INR82.4b in FY15E (down 17% YoY) and
INR101b in FY16E (up 23% YoY).
NTPC trades at PER of 12.2x and P/BV of 1.3x (RoE 10.8%) on FY16E basis.
Maintain Buy.
3
NTPC
NTPC: an investment profile
Company description
Recent Developments
NTPC is the largest power generator in India with
Installed capacity stands at 41.7GW and contribute
~30% of generation of the electricity in India. It aims to
add 14GW in 12th plan v/s ~9GW addition in 11th plan
period. It has also ventured into related areas like coal
mining, distribution, transmission, and gas exploration.

Key investment arguments


Valuation and view

th
NTPC plans to commission 14GW of capacity in 12
plan (11.9GW remaining). Similar capacity is
planned for 13th plan at 14.7GW.
NTPC’s Plant Availability factor (PAF) has been
consistently above 85%, while PLF has slightly
declined due to lower demand. Base RoE recovery is
linked to PAF and is thus assured.



NTPC has witnessed meaningful delays in capacity
commissioning/ project awards in past. Continued
delays could limit upfront earnings growth.
Lower demand/Backdown from SEB may impact the
company’s generation incentives.

Target price and recommendation
Current
Price (INR)
150
Power sector has begun to witness several
initiatives by authorities to address concerns on
SEBs, fuel supply pacts and PPAs. It would however
take a while before clarity on several issues
emerges. In this environment, we continue to
prefer CPSUs which are relatively better positioned
on these fronts.
EPS: MOSL forecast v/s consensus (INR)
Target
Price (INR)
Upside
(%)
Reco.
177
18.0
Buy
Shareholding pattern (%)
FY15
FY16
MOSL
Forecast
Consensus
Forecast
10.0
12.3
11.7
12.7
Variation
(%)
-14.6
-3.5
Stock performance (1-year)
Sep-14
Jun-14
Sep-13
Promoter
75.0
75.0
75.0
DII
11.8
11.6
9.9
FII
10.4
10.7
10.5
2.8
2.8
4.6
Others
We expect NTPC to report net profit of INR82.4b in
FY15E (down 17% YoY) and INR101b in FY16E (up
23% YoY).
NTPC trades at PER of 12.2x and P/BV of 1.3x (RoE
10.8%) on FY16E basis. Maintain Buy.
Sector view
Key investment risks

FY15 capacity addition target to continue at 1.8GW.
Boiler light up for Barh project is completed.
Note: FII Includes depository receipts
31 October 2014
4
NTPC
Financials and valuations
Income statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Balance sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
31 October 2014
(INR Million)
2014
2015E
2016E
2017E
714,900 723,898 734,098 822,667
11
1
1
12
177,774 148,381 166,399 205,602
24.7
20.3
22.5
24.8
41,422 49,174 52,352 59,010
136,352 99,207 114,046 146,592
24,066 28,388 27,539 38,807
26,761 26,365 26,505 29,353
0
0
0
0
139,047 97,184 113,012 137,137
29,299
9,882 11,996 15,651
21.1
10.2
10.6
11.4
109,747 87,302 101,016 121,486
99,308 82,399 101,016 121,486
10
-17
23
20
(INR Million)
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2014
2015E
2016E
2017E
82,455
82,455
82,455
82,455
775,699 822,785 877,268 942,793
858,153 905,240 959,723 1,025,247
651,673 621,921 699,923 766,797
10,516
10,516
10,516
10,516
1,520,343 1,537,677 1,670,162 1,802,561
1,169,921 1,295,453 1,460,129 1,675,714 Cash flow statement
448,812 497,987 550,339 609,349 Y/E Mar
721,108 797,466 909,790 1,066,365 OP/(Loss) before Tax
448,887 380,139 389,796 340,422 Depreciation
97,579
66,756
69,156
71,756 Others
514,361 520,012 564,472 585,712 Interest
53,734
59,103
61,866
64,755 Direct Taxes Paid
52,201
61,075
63,931
66,916 (Inc)/Dec in Wkg Cap
153,114 143,454 178,293 170,997 CF from Op. Activity
255,313 256,381 260,382 283,045 (Inc)/Dec in FA & CWIP
261,591 226,696 263,052 261,695 (Pur)/Sale of Invt
179,771 159,601 200,857 202,508 Others
81,820
67,095
62,195
59,187 CF from Inv. Activity
252,770 293,316 301,420 324,017 Inc/(Dec) in Net Worth
1,520,344 1,537,677 1,670,162 1,802,561 Inc / (Dec) in Debt
E: MOSL Estimates Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2014
2015E
2016E
2017E
12.0
18.3
104.1
5.8
15.4
10.0
16.6
109.8
4.2
11.5
12.3
18.6
116.4
4.9
11.5
14.7
21.9
124.3
5.9
11.5
12.5
8.2
1.4
2.4
9.8
3.8
15.0
9.1
1.4
2.4
11.6
2.8
12.2
8.1
1.3
2.4
10.6
3.3
10.2
6.9
1.2
2.2
8.9
3.9
13.2
9.4
9.9
6.5
10.8
7.1
12.2
8.4
0.5
26.5
27.2
121.0
0.5
30.6
29.6
100.3
0.5
31.5
30.5
127.8
0.5
29.5
28.5
118.6
0.8
0.7
0.7
0.7
(INR Million)
2014
139,047
41,422
0
24,066
-29,299
-10,014
165,222
-215,256
-10,022
0
-225,279
0
96,947
-24,066
-39,364
45,023
-15,034
168,677
153,643
2015E
2016E
2017E
97,184 113,012 137,137
49,174
52,352
59,010
0
0
0
28,388
27,539
38,807
-9,882 -11,996 -15,651
-50,205
26,735 -29,894
114,659 207,642 189,410
-56,784 -174,333 -166,211
-30,823
2,400
2,600
0
0
0
-87,607 -171,933 -163,611
0
0
0
-29,060
78,625
67,436
-28,388 -27,539 -38,807
-29,452 -34,078 -40,984
-41,862
-3,586 -35,671
-14,811
32,122
-9,872
153,114 143,454 178,293
138,303 175,576 168,421
5
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 Analyst ownership of the stock
NTPC
No
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31 October 2014
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6