NTPC’s Q3FY17 adjusted PAT of Rs 22.4 bn moved up 8.5% y-o-y, implying RoE of 19.8% (a 40 bps decline y-o-y). This was on average regulated equity of Rs 424 bn, an 8%/1% increase y-o-y /q-o-q. For FY17, management continues to build target capacity addition of 4 GW (already achieved capacity addition of 1.37 GW to date). The company has billed the energy charges on GCV ‘as received’ measured after the secondary crusher till September 30, 2016 and GCV measure on wagon top with effect from October 1, 2016. At the same time, the Delhi High Court has permitted NTPC to approach Central Electricity Regulatory Commission (CERC) with the difficulties being faced in implementing wagon sampling. Retain Buy with a SoTP-based target price of Rs 190.
Increase in regulated equity aids earnings
Q3 FY17 coal PLFs were down 102 bps y-o-y and power off-take up a mere 1% (57.2 BUs versus 56.6 BUs y-o-y). However, we estimate core PAT (ex-treasury income) to be up ~11% y-o-y, aided by 8% growth in regulated equity (R424 bn versus R391 bn y-o-y).
Uncertainty around GCV measurement of coal persists
For 13 stations, NTPC has billed for energy charges on basis of the CERC tariff orders under the 2014 regulations. However, for rest of the stations, the company has billed the beneficiaries on GCV ‘as received’ measured after the secondary crusher till September 30, 2016 and GCV measure on wagon top with effect from October 1, 2016.
Outlook and Valuations
Upbeat prospects; maintain Buy. We reiterate our investment rationale for NTPC that step-up in commissioning activity will drive earnings growth over FY16-18, even as clarity on impact of potential heat loss after the coal unloading stage is a key monitorable. At CMP, the stock trades at 1.5x and 1.4x FY17e and FY18e P/BV, respectively. We maintain Buy/SP with SoTP-based TP of Rs 190.
For 9mFY17, growth in generation (excluding solar) stood at 3.72% which is commensurate with the capacity addition. Country-wide growth in generation (ex-solar) was 5.19%, while capacity growth (ex-solar) was 6.23%. Talcher, Sipat and Korba were among the best performing plants in terms of PLFs with PLF of 91.77%, 89.33%, and 87.31%, respectively. Talcher had highest-ever generation of 11.496 Bus in the quarter.
An MoU was signed between NTPC and NALCO in December 2016 to set up a joint venture (JV) company to supply 2,400 MW from the proposed coal-based power plant at Gajamara (Orissa) to meet captive power demand of NALCO.
In Q3FY17, NTPC added Kudgi unit I (800 MW) to its commissioned capacity. NTPC announced commissioning of Nabinagar Unit 1 (250 MW) in Jan 2017 and Mauda stage2 (600 MW) in February 2017. For the 9mFY17 period, solar generation stood at 341 Mus versus 118 Mus last year. The company issued first EURO-denominated bonds of R500 m at coupon of 2.75%.
Generation from the coal and gas-based plants was low due to grid restriction. Provision for tax was higher owing to previous period earnings included in the current quarter. For 9mFY17, coal consumption was 122.4 MMT (domestic 120.77 MMT and imported 1.27 MMT). Consumption of domestic coal increased due to improved supply. For 9mFY17, gas consumption stood at 5.18 mmscd versus 5.70 mmscd y-o-y.
Capacity addition of 4 GW planned in current fiscal (1.375 GW has been added to date). As on date, regulated equity stands at Rs 424 bn. Capex incurred during 9mFY17 was Rs 175 bn versus R162 bn in FY15 for NTPC standalone. On recent media articles which state that NTPC will decommission 11 GW of old power plants, management mentioned that any decommissioning will entail parallel new capacity commissioning. Regarding progress on the Chabra acquisition, management mentioned that due diligence process is going on. They also stated that the acquisition will surely not be 100% debtfunded. For Q3FY17, adjusted profit stood at Rs 22.44 bn versus Rs 22.33 bn y-o-y.