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4Q Adj. PAT +19% YoY; RE capex to pick up from FY25

NTPC 4Q FY22 adj PAT came in at INR 45.6 bn (v/s INR 38.3bn, +19% YoY) beating JMFe by 13%, led by , i) capacity addition of 3.8 GW led 7% growth in regulated equity and ii) Lower fixed cost under-recoveries (-25% YoY) in FY22. Also NTPC‘s investment of c. INR 280bn in its JV/subs are now contributing to operational income in FY22 (dividends have grown +77% YoY). The FY22 standalone regulated equity at INR 708 bn is expected to grow at 10-12% CAGR over next 2 years with 5-6GW of annual capacity addition (1-1.5GW/year of this is from renewables). NTPC overdue receivables from Discoms improved to INR 42bn (falling 25% YoY in FY22).

NTPC’s transition to Renewable Energy (RE) is expected to pickup from current installed capacity of 1.9GW to 15GW by FY25-26, of which 3.4GW is under construction and further 2.8GW worth of bids won. Company plans to consolidate all its solar/wind assets under its RE subsidiary which in turn plans an IPO / strategic stake sale by end of FY23. There is currently an uncertainty in the near term solar module supply/costing given BCD + ALMM mandate domestic module procurement whereas domestic module manufacturing capacity remains limited (at least for next 1-2 years). NTPC expects Government to relax some regulations including grandfathering of domestic procurement clause which will allow module import in the near term to overcome the supply shortage. Hence, we believe NTPC’s FY24 target of adding 950 MW of RE may see some upside (once regulations are relaxed) with accelerated RE capex in FY25-26, given its FY26 target of 15GW.

JM View: We find NTPC poised for leadership in India’s solar market given its visible pipeline of projects already won + aggressive targets, competitive advantage on debt cost at <6% (vs. 8% for others) and benefit of 18GW solar park tie ups with states. We find NTPC delivering 17% core RoE and maintaining 5-6GW of annual capex over FY23-26 with rising share of renewables, while the stock trades at 0.9x BV and 8x P/E for FY24. Factoring in its RE target of 6GW/yr and JV capacity, we arrive at a revised SOTP of INR 180. Maintain BUY.

Healthy capacity addition boosts 4Q: NTPC reported an adj PAT of INR 45.6bn (+19% YoY) on a) healthy capacity addition of 2.2/5.3 GW in FY22 on Standalone/Consol basis and b) Dividend from JVs and Subsidiaries grew 77% YoY.

Turning Green: NTPC has 1.4GW installed RE capacity with 7.4GW under pipeline of which 3.5GW is expected to commission in 24 months. Given its ability to leverage parent balance sheet for higher D/E in solar SPVs, coupled with access to cheap long term debt (10 /15 year bonds raised in 1HFY22 at 6.7-6.8%) we find NTPC posed to gaining leadership in India’s solar IPP market, as competition has debt cost closer to 7.5-8%– see our RE Crystal Gazing report. NTPC targets RE capacity of 15GW by FY26 (2GW installed + 6GW under development) and 60GW by FY32. Tis implies NTPC will maintain its current run rate of 5-6GW annual capacity addition with rising share of RE from FY25.. We also find NTPC benefitting from the option to utilise solar power to replace high-fuelcost thermal generation tied-up under PPAs (estimated 26GW).

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