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Buy NTPC Ltd For Target Rs.145

Underlying numbers in-line, aided by LPS

Steady growth led by capacity additions; valuations attractive

* NTPC’s 4QFY21 results highlight a steady performance given the regulated business and aided by other income. S/A adj. PAT (excl. FC u/r) was up 17% YoY to INR38.6b.

* NTPC has ramped up its longer term RE capacity target to 60GW by 2032 (earlier: 32GW). While this may seem ambitious (implying 5–5.5GW p.a. of RE additions over the next 11 years), the co. has taken steps to improve its renewables footprint. ~3GW of renewable capacities are under construction and expected to be commissioned over the next two years. Even as the co. gradually scales up on its renewables journey, we expect continued capitalization for its thermal projects to drive 12% growth in regulated equity over FY21–23E. We maintain Buy, with a DCF-based TP of INR145.

Profits aided by other income

* Adj. for one-offs, NTPC's S/A PAT (excl. FC u/r) was up 17% YoY to INR38.6b (our est.: INR32.6b) on the back of higher other income. Reported PAT was higher at INR44.8b, led by an INR7.7b net benefit on the reversal of tax provisions on the Vivad se Vishwas scheme.

* Other income at S/A stood at INR16.7b and was boosted by strong late payment Surcharge (LPS) income of INR6.2b (v/s our est.: INR4.5b) and INR7b in dividends from subs and JVs. Adjusted for the dividends from subs and JVs, PAT nos. would be at ~INR32b.

* FC under-recoveries stood at INR0.3b for 4Q (v/s our est. of INR0.6b worth of recoveries). The miss was led by FC under-recoveries at its Lara plant.

* Profit from JVs was higher at INR2b v/s INR0.5b in the previous year, led by better profits for Meja.

* S/A receivables declined to INR137b (50 days of receivables) v/s INR157b at the end of FY20. This was significantly lower than INR268b in receivables at the end of 1H. In our view, money from the Atmanirbhar scheme has played a key role in the reduction.

* Plant load factor (PLF) at coal-based plants was higher YoY at 77.1% (v/s 69.5% in the previous year). PLF incentives were also higher YoY at INR440m (v/s INR350m). Plant availability factors at coal-based plants declined YoY to 89.1% (v/s 94.3% in the previous year).

* The company commercialized 2GW of plants during the quarter, led by commercialization at Gadarwara (800MW), Meja (660MW), and Kameng (300MW).

* NTPC has also approved a final dividend of INR3.15/sh, taking the total FY21 dividend to INR6.15/share.

* FY21 reported consol. PAT stands higher at INR146b. Adjusted for one-offs, PAT would be higher by 11% YoY at INR152b.

Management commentary

* NTPC has increased its renewable capacity target to 60GW by 2032 (v/s 32GW by 2032 earlier). The co. targets 15GW of commissioned RE capacity by FY24. It could also look at plans for potential spin-offs / the monetization of its RE subsidiary.

* The co. plans to commission 4.6GW of thermal (2.4GW in standalone) in FY22, with another 5.2GW in FY23. Capex for S/A is expected at INR238b in FY22.

Valuations attractive; reiterate Buy

* NTPC has increased its longer term RE capacity target to 60GW by 2032 (earlier: 32GW). While this seems ambitious, implying 5–5.5GW p.a. of RE additions over the next 11 years, the co. has taken steps to improve its renewables footprint. The co. has emerged as the lowest bidder for 1.4GW of competitively bid out renewable projects and has ~3GW of renewable capacities under construction.

* Even as the co. gradually scales up on its renewables journey, we expect continued capitalization for its thermal projects to drive 12% growth in regulated equity over FY21–23E and improve RoEs. Receivables have significantly reduced as money from PFC–REC has come through and power demand continues to recover. The stock trades attractively at FY22E P/BV of 0.8x and dividend yield of 6%. We maintain Buy, with DCF-based TP of INR145/share.

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