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In-line numbers, partly aided by higher other income

Steady growth led by capacity additions; valuations attractive

* NTPC’s 3QFY21 results highlight steady growth in its regulated business, partly aided by other income. S/A adj. PAT (excl. FC u/r) was up 16% YoY to INR33.7b.

* The co. has undertaken steps on the renewable front, with ~2GW of renewable capacities expected to be commissioned in FY22. It has recently been the lowest bidder in 1.4GW of renewable projects as well. With the THDC and NEEPCO additions and a pickup in capitalization, we expect a 9% earnings CAGR over FY20–23E. Maintain Buy, with TP of INR139 (DCFbased).

Other income aids profitability

* Adj. for one-offs, NTPC's S/A PAT (excl. FC u/r) was up 16% YoY to INR33.7b (in-line), partly aided by higher-than-expected other income. Other income rose 44% YoY to INR7.6b on the back of higher late-payment surcharge (LPS) income.

* LPS income stood at INR5.7b (v/s INR4.6b in the previous year) given the increased profile of DISCOM overdues. However, the co. noted it has lowered the LPS rate to 12% pa (v/s 18% pa earlier) for dues settled under the Atmanirbhar scheme.

* Profit from JVs was higher at INR2b, v/s INR0.8b in the previous year, led by better availability at Meja.

* PLF at coal-based plants was higher YoY at 64.3%. PLF incentives were also higher YoY at INR760m (v/s INR90m).

* Plant availability factors at coal-based plants rose YoY to 89.1% (v/s 88.3% in the previous year) given better coal availability. Fixed Cost underrecoveries (FC u/r) came in at ~INR700m (v/s recoveries of ~INR700m in the previous year), led by under-recoveries at Kahalgaon.

* The company commercialized 865MW in 3Q, led by the commercialization of Lara (800MW).

* NTPC has also approved an interim dividend of INR3/share.

Management commentary – overdues decline

* Overdues decreased to INR167b in Dec and have declined further to INR157b in Jan (v/s INR192b at the end of 2Q). The co. expects another INR80b to flow in from tranche 2 of the Atmanirbhar scheme.

* The FY21 commercialization target is set at 5.1GW, with a further 6GW in FY22. The FY22 target includes the commissioning of 1.8GW of solar.

* The co expects the issue at Kahalgaon to be resolved by end-March. It expects overall FC u/r to come in at INR3.5–4b at the end of FY21. The co. is also in touch with CERC to recover the INR0.8b impact due to high/low demand season regulations.

Valuations attractive; reiterate Buy

* NTPC has undertaken steps on the renewable front and emerged as the lowest bidder in 1.4GW of renewable projects as well. We expect capitalization to pick up pace, and drive a regulated equity CAGR of 11% over FY20–23E and boost RoE (+100bp accretion). Receivables, though, would remain the key monitorable; we expect the situation to improve as power demand recovers and money from the PFC-REC scheme flows through. The stock trades attractively at FY22E P/BV of 0.7x and dividend yield of ~7%. Maintain Buy, with DCF-based Target Price of INR139/share.

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