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Decent Quarter; Outlook intact

NTPC Ltd. owns and operates power generation plants that supply power to state electricity boards throughout India. The company generates power from coal, gas, liquid fuel, hydro, solar, nuclear, wind and renewable energy sources and currently has an installed capacity of ~66GW.

* Topline fell 2.5% YoY and continued to get impacted by slowdown in industrial and commercial activities due to the second wave of COVID.

* EBITDA margin improved 20bps YoY to 30.8% benefitted by lower employee expenses partially offset by higher operating expenses. PAT surged 3x YoY to Rs. 4,479cr, further aided by tax gains.

* Company announced final dividend of Rs. 3.15 per share, taking total DPS to Rs. 6.15, including interim DPS of Rs. 3 in FY21.

* Continued capacity additions and gradual recovery in demand should help company perform better in upcoming period. We reiterate our BUY rating on the stock with a revised target price of Rs. 140 based on 1.0x FY23E BVPS.

Gradual pick-up in demand

Standalone revenues declined 2.5% YoY (+8.4% QoQ) to Rs. 26,567cr, due to overall slowdown in industrial and commercial activities amidst second wave of COVID. Revenue from power generation saw decline of 2.4% YoY, while improved 8.1% QoQ basis to Rs. 26,419cr. On the other hand, revenues from other activities came in at 1,477cr (+4.5% YoY/+19.8% QoQ).

Energy sales rose 13.8% YoY to 72.2bn units on account of higher power demand. PAF-Coal dropped 521bps to 89.1% owing to technical overhaul at Darlipalli, Lara, and Kahjalgaon station. Gross coal production increased 13.7% YoY to 77.6 BUs and commercial production went up 13.4% YoY in Q4FY21.

NTPC recorded highest ever gross generation of 314.1 BUs in FY21. Coal produced from captive mines - commercial grew 42.9% to 3.7 MMT vs. 2.6 MMT in Q4FY20. Total coal supply position declined 2.2% to 45.9 MMT as compared to 47.9 MMT in Q4FY20. Gas consumption tanked 59.4% to 1.12 MMSCMD.

Bottom line surged significantly on tax gains

EBITDA declined 2.0% YoY to Rs. 8,181cr, while EBITDA margin expanding 20bps YoY to 30.8% supported by lower employee benefit expenses as percentage of sales (- 1.4pps to 3.8%) partially offset by higher fuel cost (+3.8pps to 58.8% % YoY). PAT jumped significantly (~3x to Rs. 4,479cr) further benefitted by tax gains during the quarter.

Aggressive capacity additions

Company’s installed capacity rose 3,700MW YoY to 65,810MW, while commercial capacity rose 3,364MW YoY to 64,490MW. Management revised its capacity target upward for longer-term renewable energy (RE) from 32GW to 60GW by 2023, implying 5 to 5.5GW p.a. RE capacity addition over the next 11 years. Notably, ~3GW of RE capacities are under construction and expected to commence operation over next two years.

Valuation

We remain positive on the stock as NTPC continues to focus on massive capacity addition from current level in coming periods. Additionally, gradual recovery in demand will support company’s topline. Therefore, we reiterate our BUY rating on the stock with a revised TP of Rs. 140 using a target multiple of 1.0x FY23E BVPS.

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