NTPC Ltd : Profits in-line, aided by other income To see steady growth, led by capacity additions; maintain Buy - Motial Oswal
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Profits in-line, aided by other income To see steady growth, led by capacity additions; maintain Buy
* NTPC’s 1QFY22 results highlight a steady performance – given the regulated business and aided by other income. S/A adj. PAT (excl. FC u/r) was broadly flat YoY at INR33.1b.
* NTPC has set a RE capacity target of 60GW by 2032. 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 renewable 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 its renewables journey, we expect continued capitalization for its thermal projects to drive 12% growth in regulated equity over FY21–23E. Maintain Buy, with DCF-based TP of INR140.
Profits aided by other income
* Adj. for one-offs, NTPC's S/A PAT (excl. FC u/r) was broadly flat YoY at INR33.1b (our estimate: INR33.7b) on the back of higher other income. Other income at S/A was up 35% YoY to INR7.6b (estimate: INR5.1b) and was boosted by dividends of INR3b from subs and JVs. LPS was lower at INR2.65b v/s INR4.73b in the previous year. Adjusted for the dividends from subs and JVs, PAT nos. (excl. FC u/r) would be INR30.6b.
* Commercial capacity was up 25MW QoQ to 64.5GW, led by the commercialization of solar capacities.
* FC under-recoveries stood at INR1.9b (v/s est. INR1.8b and INR2.25b in the previous year). FC under-recoveries were led by Simhadri (INR1.1b) and Rihand (INR0.5b). Plant availability factors at coal-based plants were marginally down YoY to 93.7% (v/s 95.8% in the previous year).
* PLF at coal-based plants rose to 69.7% (v/s 58.2% in the previous year). PLF incentives stood at INR1.7b v/s INR1.4b in the previous year.
* Reported S/A PAT was up 27% YoY to INR31.5b. The jump in reported nos. is attributable to the impact of INR8b in rebates in the previous year.
* Profit from JVs was higher at INR2b (v/s INR1.3b in the previous year), led by better profits at Meja.
* At the consolidated level, reported profits were up 17% YoY to INR34.5b, while adjusted profits would be down 5% YoY to INR34.6b.
* Profit for THDC was lower at INR0.48b (v/s INR1.25b in the previous year) due to lower water availability. Profits at NEEPCO were higher at INR1.2b (v/s
Management commentary highlights
* NTPC is focused on transitioning to renewables and plans to spearhead new technologies such as green hydrogen. It is undertaking a pilot project at Vindhyanchal for green hydrogen, with potential cost of < USD3/kg.
* The co. is also exploring opportunities for power distribution and manufacturing methanol from CO2. It would compete in the bid for the privatization of the Chandigarh DISCOM.
* The co. plans to reach RE capacity of 15GW by FY24 and 60GW by 2032. Upcoming bids in the market, along with tie-ups for solar parks / UMREPP would provide the basis for growth.
* NTPC is looking to monetize its a) renewables subsidiary and b) NVVN (power trading sub) over the next 18 months – it has commenced work on the same.
Valuations remain attractive; reiterate Buy
* NTPC plans to reach RE capacity of 60GW by 2032. While this seems ambitious, the co. has taken steps on improving its renewable footprint. The co. has emerged as the lowest bidder for 1.9GW of competitively bid out renewable projects, and ~3GW of renewable capacities are under construction.
* Even as the co. gradually scales up its renewables journey, we expect continued capitalization for its thermal projects to drive 12% growth in regulated equity over FY21–23E. Receivables have reduced significantly as money from PFC-REC has come through and power demand continues to recover. The stock trades attractively at FY23E P/BV of 0.8x and dividend yield of 7%. Maintain Buy, with DCF-based Target Price of INR140/share.
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