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NTPC reported good operational numbers in Q2FY22 despite issues related to coal availability and lower surcharge income. While reported standalone (SA) / consolidated PAT was Rs32.1bn/Rs36.9bn (-8.4%/+5.6% YoY), adjusted PAT was Rs33.7bn / Rs37.3bn (-4.6% / +6% YoY) respectively. One-time charges during the quarter were due to Rs5bn YoY decline in LPS and higher deferred tax (on cons. PBT) paid for solar projects to be adjusted over the next few quarters. Core earnings continued to be strong backed by capacity addition. Coal stocks at plants and coal availability are improving on daily basis, and is now not an issue. With recent wins on 2GW through CPSU scheme and 775MW by NTPC RE in H1FY21, there is a clear visibility of addition of 6.3GW. MBED is neutral for NTPC. Maintain BUY.

* Good operational performance: In Q2FY22, cons. adj. PAT was Rs37.3bn (up 6% YoY), while reported PAT was Rs36.9bn (up 5.6% YoY), and revenue was Rs324bn (up 16.9% YoY). Standalone adjusted PAT was Rs33.7bn (down 4.6% YoY), reported PAT was Rs32.1bn (down 8.4% YoY), while revenue was Rs283.3bn (up 14.8% YoY). The major adjustment in Q2FY22 was due to Rs5bn YoY decline in LPS. Further, one-time negative impact on consolidated PAT was due to higher deferred tax payment for solar projects to be commissioned in H2FY22 (thus adjustable). Standalone/group gross generation was 74.8BU/91BU, up 10.5%/16.7% YoY. Coal PLF was up 531bps at 69.6%. Average tariff was slightly lower at Rs3.82/unit. Total commercial/installed capacity of NTPC group was 66.7GW/66.9GW while for standalone it was 53.2GW/53.5GW. 2160MW was commercialised in H1FY22. Capacity addition targets: FY22 – 5GW thermal and 1.1GW RE; FY23 – 4.9GW thermal and 5GW RE. Group capex for H1FY22 was Rs151.4bn (vs Rs129.8bn YoY). FY22 standalone capex target is Rs237bn.

* Clear visibility of 6.4GW RE capacity addition post CPSU scheme bid win taking total capacity to 7.5GW: Current group operational capacity is 1.4GW while the target is 15GW by FY25. While RE capacity under construction is 3,017MW, PPAs are yet to be signed for the 3,365MW won through bids. Further, 3,100MW is under tendering. We estimate average tariff of operational and under-implementation projects of 7.5GW at ~Rs3/unit at an average asset base of ~Rs350bn. We have assumed 10GW RE capacity by FY25E, with equity value of Rs220bn.

* Decoding H1FY22 performance for the year ahead: With adjusted EPS for standalone/ consolidated entity at Rs6.7/Rs7.7 in H1FY22, we believe NTPC is on course to achieve FY22E target EPS of Rs16.8/Rs18.8, given that in H2FY22 there should be reversals of the higher deferred tax payments done for solar projects in H1FY22. Increase of Rs43.1bn in regulated equity in TTM supported by robust commissioning pipeline and green initiatives will keep the core RoE in 17.5-18% range. Total receivables stood at Rs137bn and overdue receivables at Rs60.5bn. Fixed-cost under-recovery was Rs4.4bn at H1FY22-end, mainly due to extended overhauling at a few units, which NTPC expects to recover by FY22-end. Under-recovery due to coal availability issues were insignificant.

* Maintain BUY with a revised target price of Rs196/sh (earlier: Rs165/sh), factoring-in 10GW of operational RE capacity by FY25E and giving it a platform value of 10x EV/EBITDA. We have not factored-in the upcoming Talcher 2x660MW thermal plant, which is in the final stages of approval.

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