er grp4 ntpc - final

7/31/2019 ER Grp4 NTPC - Final

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8/17/12

NTPC

Equity Research: Group FSector: Utilities

July 2012


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8/17/12 Sector Highlights

PMOs Focus on fuelling all projects ; reviving the Utilities sector

v Improving viability of every coal-based project to ensure PLF of at least 85%.

v PLF of coal based stations declined to 73.5% in June due to poor quality/quantity of coal.

v PAF for coal based TPS was at 92% in May 2012 (+1.6% YoY )

v Coal India unable to meet demand ; supply issue can be mitigated through imports, necessitatingcoal price pooling.

v PLFs of the gas-based plant stood at 59.9%

v Gas supply not easy ; low domestic availability, higher cost LNG imports.

v Current Power tariffs not feasible; separate peaking power tariff system an option.

Restructuring of Discoms will revive growth

v 50% o/s debt to be taken up by states - Financial Restructuring Plan (FRP)

v Along with tariff hike, would mean improved cash flow, leading to higher power demand.

Developer with captive coal block have to share the benefit of low cost

v would be asked to compulsorily participate in competitive bidding, and if not, face

cancellation of coal blocks with retrospective effect


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Coal continues to be the single largestcontributor to generation

55 coal based plants (constituting 51% ofthe total installed thermal power) recordedPLFs above 73% in FY12, of which NTPCplants constituted 27%

Addition in capacity expectedfor the coming years

Continuing decline of the PAF for Coal basedTPS

Coal project PLF is trending lower due to fuelshortage


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8/17/12 NTPC at a Glance

Source: Bloomberg/MoneyControl

FY10 FY11 FY12 FY13E FY14E

REVENUE 485234 575995 658932 724825 833549

EBITDA127064.0

0 144736 155164 179990 233394

PAT 88377 93534 98127104834.8

56117415.0

39

EPS 10.72 11.34 11.90 12.71 14.24

EPSgrwth 5.7% 5.8% 4.9% 6.8% 12.0%

ROE 14% 14% 13% 13% 13%

P/B 2.3 2.7 1.9 1.5 1.7

P/E 16.3 19.8 14.5 12.0 12.8


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8/17/12 Key Highlights

FY12 capacity addition was less than expected, improvementsexpected in FY 13 NTPC had commissioned 2,820 MW in FY12 of project against its target of 4,320 MW.

Revised downwards its 12th Five Year Plan capacity addition to 14.0 GW. It has set a capacity addition target of

4,160 MW in FY13Has already achieved ~50% of the FY13 capacity addition, thereby improving outlook on its project executionImprovement in capacity addition should allow NTPC to arrest the falling trend in reported RoE.

Debtor days had increased 54 days in FY11 to 69 days in FY12 The stress on cash flows of state distribution utilities has led to delays in paymentsThe recent tariff hikes undertaken by state distribution utilities should improve their cash flows.

The financial condition of state distribution utilities continues to be a concern

Investment approval received for 2,640 MW of projectsApproval for the 1,320 MW Mouda super thermal power project and Solapur thermal power project.NTPCs Unit-11I of 500 MW of Vindhyachal Super Thermal Power Station has been commissioned on June 14.With this, the total capacity of NTPC group has become 39,174

FSA signing , JVs and coal availability Agreed to sign the fuel supply agreement (FSA) with Coal India at minimum assured supply of 65%. FSA withcoal India key for sustaining core RoE. Assured supplies of low-cost coal, clubbed with benefits of tax arbitrage, have allowed NTPC to earn core RoEof 25-26% from its operational assets.Blending imported coal (~30%) expected to rise as fuel cost is pass through. Has signed a 50:50 JV with Bangladesh Power Development Board to set up a 1,320 MW coal-based power

plant in Bangladesh.


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8/17/12 Performance of the company


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8/17/12

Tariff Differentials a case in pointStates Conventional Power Wind Power Small Hydro Power Biomass Power

Andhra Pradesh 2.8-3.2 3.50 2.69 2.63

Chhattisgarh 2.8-3.2 - - 2.71

Gujarat 2.8-3.2 3.56 - 3.00

Haryana 2.8-3.2 4.08 2.25 4.00

Karnataka 2.8-3.2 3.7 2.9 2.74

Kerala 2.8-3.2 3.14 - 2.80

Madhya Pradesh 2.8-3.2 4.03 - 3.36 2.25 3.33-5.14

Maharashtra 2.8-3.2 3.50 2.25 3.05

Punjab 2.8-3.2 3.66 2.73 3.01

Rajasthan 2.8-3.2 4.28 4.50 2.75 3.60-3.96

Coal Based Power Generation least sought after fuel base for electricity

offtake

Future: Increasing coal prices and stagnant tariff rates does not cut a happypicture for the both the bottomline and topline

t


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8/17/12 mprove supp es wou ea to mprov ng oa anavailability factors

Increasing reliance on captive coal procurement Companys focus on long term supplies contracts would benefit in the long run Last two quarters saw a fall in PAF, however renewed contracts should benefit

in the expected time lines NTPC's PAF for the first two months of the fourth quarter was 95%.( as

compared to 83% and 85% in previous quarters)

Stronger PLF as compared to

country average

Secured fuel supply has led to

PLF >85% and PAF >90%


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Coal India FSA: improved fuelsecurity

PLF- 80% for coal stations, 62% forgas

Rise in generation: 4% y-o-y

Net units sold up by 3% y-o-y

Despite under-recovery of fixedcapacity charges, incentives due to95% PAF in Coal plants

NTPC has ~11GW of capacity underconstruction which provides firmvisibility

NTPC: DCF Valuation

Higher operating leverage due to higherPLF of 91% at the coal Station

5.6% y-o-y EBITDA increase in FY12

Good dividend payout, 40% in FY12

PAT down 7% y-o-y

Higher other income and lower interest cost

NTPC was range bound between 150-190 inthe last 52 weeks, and May-12 saw it hit ayearly low of 138.95 due to fuel Right now, it ison an up-trend driven by Government

intervention in coal supply, FSA

NTPCs DCF value is 178, while thecurrent market price is in the 155-160range.

DCF Assumptions

WACC 10.2%

Market Risk Premium 5%Beta 0.8

Risk free rate 8%

D/E 0.8

Cost of Debt 9.6%

Cost of Equity 11.9%

Div Growth Rate 7.8%

Conclusion

Fundamentals

Financials

NTPC has been outperforming its peers in themarket in terms of financials


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8/17/12 e a ve va ua on s ows a s a r y va ue n emarket

0 2 4 6 8 10 12

P/B ratios across companies in the power sector

We have used the P/Bmultiple as differential tariffstructures across different

power sources make salesand profitability ratios lesseffective

If we consider other players,NTPCs P/B ratio seems to becomparable to the industryaverage

NTPCs P/B ratio is marginally above the industry average and hence it does not seem to be overvalued

We believe that the stock is trading at a P/BV of 1.5 x and 1.7x of FY13E and FY14E forecasted book value respectively.

Through this the targetvalue is Rs 152


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8/17/12 NTPC: Trend Analysis

RoE (%)

Change in PAT(%)

Source: NTPC Official Webstie

- Pickup in project completion should help arrest thedecline in NTPCs reported RoE (down approx

300bps through FY08-12), due to:1) high cash balance on books &2) equity deployed in projects.

- For FY12, Adjusted PAT declined 14.8% y-o-y (up19.8% q-o-q) onaccount of higher tax outgo.

- The provision for tax included Rs.1,548 mn onaccount of tax related to the previous years.

0

2

4

6

8

10

12

0

5

10

15

EPS (%)

5

10

15

- EPS declined 14.8% y-o-y (up 19.8%) q-o-q to Rs 3.2.

- Reduction in projected growth in EPS for FY13 & FY14


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8/17/12 NTPC: Trend Analysis

Share Price Movement (5 year)

Total Debt/Equity

- The company has announced a total dividend of Rs 4.0per share for FY12.

- It has offered a dividend yield of 2.8% for FY12.

- The total debt increased by 10.61% from FY11 to FY12

-

In FY12, EBITDAincreased 5.6% y-o-y (35.8% q-o-q) drivenby increase in revenues and decline in other expenditure.

EV / EBITDA

0

5

10

15

0

0.2

0.4

0.6

0.8

1

Source: NTPC Official Webstie


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8/17/12 Income Statements FY10 FY11 FY12 FY13E FY14E

Revenues 485234 575995 658932 724825 833549

Expenses 358170 431259 503768 544835 600155

EBITDA 127064 144736 155164 179990 233394

EBIDTA Margin 26.2% 25.1% 23.5% 25% 28%

Depreciation 29170 27519 31071 49693 87460

EBIT 97894 117217 124093 130298 145933Interest 13404 17165 21347 22414 25104

Operational EBIT 84490 100052 102746 107883 120829

Other income 25759 23027 29380 30057 33664

Exceptional incme 5469 284 -754 0 0

EBT 115718 123363 131372 137941 154493

Tax provision 27341 29881 33226 33106 37078

Minority interest -52 19 0 0PAT 88377 93534 98127 104835 117415

Ratios FY10 FY11 FY12 FY13E FY14EEBITDA% 0.26 0.25 0.24 0.25 0.28

PAT% 0.18 0.16 0.15 0.14 0.14

EPS 10.72 11.34 11.90 12.71 14.24

EPS Growth% 5.70% 5.85% 4.91% 6.84% 12%No. Outstanding

Shares 8246 8245 8245 8245 8245

Book value 75.9 83.2 91 98.9 108.2

ROE 14% 14% 13% 13% 13%

D/E 0.71 0.74 0.76 0.83 0.86

Interest coverage 7.30 6.83 5.81 5.81 5.81

Dividend payout ratio 41.7 39.1 39.6 39 40Dividend yield 2.2 2.40 2.60 3.00 3.60


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Balance Sheet FY 10 FY 11 FY 12 FY 13E FY 14E

Liabilities

Equity share Capital 82455 82455 82455 82455 82455

Reserves 543372 598980 661573 725522.3 795971.3

Minorities 0 4850 5956 6000 6600

Networth 625827 686285 749984 813977.3 885026.3Debt 441766 507642 567937 677131 761689

Deferred tax liability 2297 6717 7645 7645 7645

Total Liabilities 1069890 1200644 1325566 1498753 1654360

Assets

Net fixed Assets 387666 446544 523708 645311 795617Capital WP 376815 448550 491604 458478 377700

Total Fixed Assets 764481 895094 1015312 1103789 1173317Investments 98,341 81,823 63,703 48,672 32,447

Current AssetsInventory 35330 39108 41779 55667 67957

Cash and bank balances 160,530 178,598 180,917 230,972 300,216

Loans and advances 65,674 65,674 65,674 65,674 65,674Marketable Securites 19,435 1,750 1,750 1,750 1,750

Sundry Debtors 70,808 83,999 122,890 143,576 180,283

Total current assets 351777 369129 413010 497639 615880

Total current liabilities 145,096 160,571 227,055 195,896 231,461Net Current Assets 206,681 208,558 185,955 301,743 384,419

Misc Expenses/adjustments 387 15169 60,596 44,549 64,177

Total Assets1,069,89

01,200,64

41,325,56

6 1,498,7531,654,36

0

/ /


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Cashflow Statement FY 10 FY 11 FY 12 FY 13E FY 14E

EBT 115718 123363 131372 137941 154493

Tax -27341 -29881 -33226 -33106 -37078

Depreciation 29170 27519 31071 49692.59 87460.35

WC Changes -13315 -14568 -22594 -51591 -38186

Net cash (Operations) 104232 106433 106623 102936.4166689.

4

Capex -135084 -159839 -149201 -124590 -113307

Investements -816 34,203 18,120 15,031 16,225

Net cash investments -135900 -125636 -131081 -109559 -97082

Equity raised 0 0 0 0 0

Debt raised 52573 65876 60295 109194 84558

Dividend -36853.2 -36571.8 -38858.3 -40885.59 -43966Others 7,108 3,803 3,618 1,331 -3562

Net cash financing 22,828 33,107 25,055 69,639 37,030

Change in cash position -11975 13,904 597 63,017 106,637

Closing cash 160,530 174,434 175,031 238,048 344,685

8/17/12


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Why NTPC

NTPC with its regulated business model, is a safer bet in the powerutilities sector because of its dominant position in electricity generation.

Advantage of better fuel supply arrangements (FSAs) and robust powerpurchase agreements (PPAs)

DCF Valuation of RS. 178

P/B valuation of Rs. 152 based on P/B of 1.5 FY 13

Benefit due to the added capacity will reflect in the financials in thecoming years

We Recommend a Buy based on the DCF valuation.

er grp4 ntpc - final

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