Wage Provisioning, Lower in Plant Availability Impede Earnings Growth
NTPC has delivered a weak performance in 3QFY18. Its reported PAT declined by 4.4% YoY to Rs23.6bn owing to: (1) wage provision to the tune of Rs4.5bn; and (2) lower plant availability at 83% (vs. 91.5% in 3QFY17) leading to disincentive of Rs4bn on account of shortage of coal at Mauda, Kudgi, Solapur. Looking ahead, we expect NTPC’s business to improve further backed by higher capacity commercialisation, better fuel availability and likely improvement in demand owing to UDAY scheme. Rolling over our estimates to FY20E, we maintain our BUY recommendation on the stock with a revised Target Price of Rs213 (from Rs192 earlier).
Higher Revenue on Higher Generation
Despite 4.0% YoY decline in average realisation to Rs3.2/unit, NTPC’s net sales grew by 7.1% YoY to Rs207bn aided by 10.7% YoY rise in generation to 63.3bn units. PLF stood at 76.9% for coalbased plants and 29.9% for gas-based plants in 3QFY18, which were flat on YoY comparison. Commercialisation of 1.1GW during the quarter helped increase in regulated equity to Rs505bn. PLF incentive for the quarter stood at Rs300mn.
Reported PAT down 4.4% YoY on Wage Provisioning & Lower PAF
NTPC’s fuel cost declined by 7.2% YoY to Rs1.9/kWh led by lower tax incidence on account of GST and decline in coal prices on account of re-grading of coal supplies. Notably, increase in interest and depreciation charge can be attributed to commercialisation of 1.1GW of assets during the quarter. Its reported PAT declined by 4.4% YoY to Rs23.6bn mainly owing to wage provisioning to the tune of Rs4.5bn (including Rs2.4bn in accelerated leave encashment offset by Rs5.6bn gain on reversal of prior-period tax and lower plant availability PAF for coal was 83% leading to disincentives of Rs4bn on account of shortage of coal at Mauda, Solapur and Kudgi. The Management remains confident of adding 4-5GW of capacity in FY19 with a capex of Rs220bn. Kudgi (800MW) and Bongaigaon (250MW) were commercialised in 3QFY18. It expects to commission 1.6GW capacity Kudgi-U3 800MW and Lara-U1 800MW and 660MW in Meja JV in 4QFY18.
Outlook & Valuation
Looking ahead, we expect NTPC to add commercial capacity of 5GW and 6GW in FY19E and FY20E, respectively which would lead to a significant jump in regulated equity from the current level of Rs505bn.We continue to consider NTPC as one of the best placed companies in terms of fuel security, as most of its capacity off-take will continue to be through long-term Power Purchase Agreements (PPAs). At CMP, the stock trades at P/B of 1.0x & P/E 10.1x based on FY20E, which is attractive in our view. We believe that capacity addition track record, assured RoE, robust balance-sheet and strong operational cash-flows continue to augur well for NTPC. Rolling over our estimates to FY20E, we maintain our BUY recommendation on the stock with a revised Target Price of Rs213 (from Rs192 earlier).
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