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Miss on EBITDA; strategic focus on RE continues

* NTPC reported standalone 2QFY25 EBITDA of INR96.7b (-8% YoY), 19% below our estimate of INR119b. Sharp rise in other opex (INR55b vs. INR34b in 2QFY24) led to the miss at the EBITDA level. On a consolidated basis, EBITDA was down 8% YoY in 2QFY25, while PAT rose 14% YoY, boosted by substantial regulatory deferral income of INR23b for the quarter.

* Standalone revenue for 2QFY25 at INR403b came in 3% below estimate (our est. of INR417b, -1% YoY) due to a decrease in the average coal price, which fell from INR3,791/tonne to INR3,584/tonne.

* We cut our standalone FY25E adjusted PAT by 6% to INR199b, primarily due to weaker profitability observed during the quarter.

* With a capex of INR174b for 1HFY25, NTPC remains focused on its ambitious project pipeline, including an IPO for NTPC Green Energy Limited (NGEL). The aim is to achieve a renewable energy (RE) capacity target of 60GW by FY32. Management expressed confidence in the timely execution of its RE projects.

* NGEL will commission 3GW/5GW/8GW capacities in FY25/FY26/FY27, while NTPC will add 2.7GW/8.0GW thermal capacities in FY25/FY26. Thermal pipeline beyond FY26 includes 8.8GW of projects with PPA visibility likely to be achieved by the end of CY24 for this pipeline.

* NTPC declared an interim dividend of INR2.50 per share for FY25 and the date of payment shall be 18th Nov’24.

* We reiterate our Neutral rating on the stock with a TP of INR450.

Miss on EBITDA due to a spike in other opex

* NTPC reported a standalone revenue of INR403b in 2QFY25, 3% below our estimate of INR417b (-1% YoY) due to a decline in the average coal price.

* EBITDA came in at INR96.7b (-8% YoY) for 2QFY25, which was 19% below our est. of INR119b. Sharp rise in other opex (INR55b vs. INR34b in 2QFY24) led to the miss at the EBITDA level.

* Adjusted standalone PAT was 9% below our est. at INR42b (+29% YoY). We note that NTPC’s 2QFY24 financial performance was hit by one-off adjustments of INR6b relating to previous year sales.

* 1HFY25 PAT formed 42% of FY25E revised APAT. While implied 2HFY25 APAT run rate is significantly above 1HFY25, we believe this is achievable given seasonality and start of new projects driving rise in regulated equity.

* In 1HFY25, net sales grew 6% YoY to INR847b, while EBITDA/APAT increased 1%/21% YoY to INR221b/83b, respectively. In 2HFY25, we expect net sales/EBITDA/APAT to increase 7%/24%/21% YoY.

* Average tariff was INR4.67/unit in 1HFY25 vs. INR4.61 in 1HFY24.

* Operational highlights:

* The company's gross power generation was at 88BUs, 2% lower than 90BUs in 2QFY24. Plant availability for coal plants was down to 85% in 2QFY25 (2QFY24: 90%)

* Coal plant PLF was 72% in 2QFY25, down 5% YoY.

* PLF for hydro plants improved to 97% (2QFY24: 93%) while it fell for gas plants to 6.7% (2QFY24: 18.25%).

* Coal production from captive mines for commercial use rose 62% YoY to 9MMT (2QFY24: 5.59MMT)

* NTPC has a consolidated installed capacity of more than 76GW.

Highlights of the 2QFY25 performance:

* Operational performance:

* NTPC Group has added 485MW of commercial RE capacity in 1HFY25, with 90MW attributable to NTPC itself and 395MW to group companies.

* A total of 4,013MW of RE projects have been commissioned.

* The company's gross power generation was at 88Bus.

* Coal production from captive mines for commercial use rose to 9MMT.

* Capex:

* NTPC's capex for 1HFY25 was INR174b, up from INR132b YoY.

* For FY25, the estimated standalone capital outlay stands at INR227b, while the consolidated capital outlay is INR279b.

* Other Highlights:

* NTPC has a pipeline of 20-25GW of renewable energy initiatives, primarily focusing on solar and wind energy.

* The company aims to achieve a RE capacity target of 60GW by FY32, all under NTPC Green Energy.

* NTPC's subsidiary, NVVN, signed a PPA with the Nepal Electricity Authority for the sale of 230MW of power.

* A trilateral agreement was also established for the supply of 40MW of power from Nepal to Bangladesh.

Valuation and view

Our TP of INR450 for NTPC is based on:

* Value of INR266 for the standalone business at Dec’26E P/B of 2.5x.

* Value of INR24 for other subsidiaries and INR64 for JV/associates at Dec’26E P/B of 2.5x.

* Value of INR91 for the renewables business at 14x FY27E EV/EBITDA.

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