NTPC: TRANSFORMING LIVES !!!

Scrip Code: 532555 / NTPC

CMP:  Rs. 153.20; Buy at every dips.
Short term Target: Rs. 175; Medium to Long Term target Rs. 214.00; STOP LOSS – Rs. 131.00; Market Cap: Rs. 1,26,320.51 Cr; 52 Week High/Low: Rs. 190.75 / Rs. 137.00

Total Shares: 824,54,64,400 shares; Promoters: 696,73,61,180 shares – 84.50 %; Total Public holding: 127,81,03,220 shares – 15.50 %; Book Value: Rs. 88.89; Face Value: Rs. 10.00; EPS: Rs. 12.57; Div: 40 %; P/E: 12.18 times; Ind. P/E: 14.41; EV/EBITDA: 10.78

Total Debt: Rs. 47,338.33 Cr; Enterprise Value: Rs. 1,73,658.84 Cr.

NTPC INDIA LTD: The Company was founded in 1975 and is based in New Delhi, India. NTPC Limited engages in the generation, distribution, and sale of bulk power to state power utilities in India. It generates power from coal, gas, hydro, and liquid fuel sources. The company also undertakes consultancy and turnkey project contracts that comprise engineering, project management, construction management, and operation and maintenance of power plants. In addition, it engages in the oil and gas exploration, and coal mining activities. The Company’s other business includes providing consultancy, project management and supervision, oil and gas exploration, and coal mining. As of march 31, 2012, the Company was engaged in executing two projects: Lata Tapovan hydro electric project (171 mega-watts (MW)), located in Chamoli District of Uttarakhand and Rammam Hydro Electric Project, Stage III (120 MW) located in Darjeeling District of West Bengal and West Sikkim District of Sikkim. As of March 31, 2012, the Company had installed capacity in India was 199877.03 mega-watts. During the fiscal year ended March 31, 2012, the Company added 2,820 mega-watts of installed capacity. As of March 31, 2012, the Company had five subsidiaries: NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, NTPC Hydro Limited, Kanti Bijlee Utpadan Nigam Limited and Bhartiya Rail Bijlee Company Limited.

Investment Rationale:

NTPC plans to spend Rs. 20,995 crore towards capex whereas the same as of H1FY13 stands at Rs. 8,081 crore. NTPC’s Q2FY13 capex is pegged at Rs. 4,103 crore. As of H1FY13, the total installed capacity of NTPC group was 39,174 MW out of which 4,364 MW capacities is attributed to J.V.’s & subsidiary companies. The commercial capacity of NTPC group stood at 37,236 MW. As of H1FY13, NTPC has commissioned 2,160 MW of capacity whereas 2,820 MW of capacity has been commercialised. During H1FY13, NTPC commissioned 2,160 MW which comprises of one unit of 660 MW at Sipat and one unit of 500 MW each at Rihand, Mauda and Vindhyachal. During this period 2,820 megawatt has been declared on commercial operation, two units of 660 megawatt at Sipat and one unit of 500 megawatt each at Farakka, Simhadri and Jhajjar. The Gross generation of NTPC for Q2FY13 stood at 52.72 BU’s as against 50.88 BU’s, implying a rise of 3.62 % YoY. But on a sequential basis, generation was down by 10 % due to planned shutdown across majority of the operational capacity. The regulated asset base of the NTPC stands at Rs. 30,075 crore as of Q2FY13 as against an asset base of Rs. 29,295 crore in Q1FY13. The imported coal blending was at 4 % in Q2FY13 whereas for H1FY13 the same stood at 6.2 % (10.6% in H1FY12). NTPC received 32 MT of coal in Q2FY13 vs. 25.1 in Q2FY12 (increase of 24% YoY). The materialisation rate in Q2FY13 stood at 103 % vs. 88 % in Q2FY12. On the imported coal front, NTPC imported 1.5 MT, a decline of 45 % YoY. PLF for coal based stations for Q2FY13 stood at 74.9% (vs. 78.4% in Q2FY12) whereas PLF for gas based power for Q2FY13 was 57.7% (vs. 60.8% in Q2FY12). NTPC’s Total capex committed towards development of captive mines till Q2FY13 stood at Rs. 959 crore. The company expects commissioning of Pakhri Barwadih in CY13 and expects the peak production to be at 15 MT’s by FY17. The Average cost of borrowing stood at 7.31 %. The Debt/Equity ratio stood at 0.68 x as of Q2FY13. The generation loss on account of fuel supply was 5.05 BU’s in Q2FY13 as compared to 1.95 BU’s in Q2FY12. While NTPC has received the in principle approval for re-allocation of the coal blocks, the final communication in this regard is awaited. The management is confident of receiving the same and has continued with its development work and capital expenditure in these blocks. The management has indicated that the production from its Pakhri - Barwadih coal block is likely to start in 2013. The management has indicated that the company continues to realise its dues (including servicing of bonds under the one-time settlement scheme) from the state utilities. Debtor days remained stable at 35 days in Q2FY13 as against 32 days in Q1FY13.

Outlook and Valuation: 

As usual NTPC reported better Q2FY13 revenues of Rs. 16,351 crore and PAT of Rs. 3,142 crore which are higher than estimates owing to many one offs relating to accounting. Adjusted PAT came in at Rs. 2,047 crore. Other income was higher than estimates on account interest income on deposits and higher dividends from J.V.s & Subsidiaries. Capacity additions during Q2FY13 was nil due to planned shutdown. The Gross electricity generation growth was at 3.6 % YoY. There was a 10 % QoQ decline of 52.72 billion units (BU’s) mainly due to planned shutdown of capacity. As a result there was contraction of 350 bps and 310 bps QoQ in Coal plant and gas plant PLF’s, respectively in Q2FY13. However, as per management, PLF’s have started showing up tick from October 2012. NTPC has commercialised capacity to the tune of 2,820 MW in H1FY13. Realisation per unit for Q2FY13 stood at Rs. 3.05/Kwhr. NTPC’s capacity addition in 12th Plan is front loaded. The company expects to commission as much as 50 % of 12th plan target over FY13- FY14E. It is believed that the NTPC is on track to achieve the same as it has commissioned 15 % of the target in H1FY13. If the capacity additions plans pan out accordingly, then the rate of capitalisation would surprise everyone on the upside. However, NTPC is expected to commission 3,670 MW in FY13E (88% of the planned target in FY13E). The contribution of CWIP as % of Networth is expected to gradually decline to 49 % and 46% in FY13E and FY14E respectively, implying higher capitalisation intensity in the balance sheet. Given the rate of capacity additions in H1FY13, it is believed that NTPC will be able increase the rate of gross block addition from existing CWIP. Adding to this NTPC is one of safest utility to take shelter under (Regulated Model/Lesser fuel risk/Underleveraged balance sheet) when power sector is facing challenging times. At the value of 1.8x to its FY14E book value, markets will wait to see the run rate of capacity addition before re-rating the NTPC. Capacity addition in the Twelfth Five Year Plan is lower at 51,000 MW as against the earlier company estimates of 75000 MW, the focus on commercialization (thereby turning CWIP to gross fix assets) can lead to re-rating , going forward. The key Risks could be-delay in capacity addition in H1FY13-FY14 and Overhang due to disinvestment by Government of India to the tune of 9.5 %. At the CMP of Rs. 153.20, the stock is trading a P/E of 10.17 x FY13E and 8.67 x FY14E respectively. Earnings per share (EPS) of company for FY13E and FY14E are seen at Rs. 15.06 and Rs. 17.67 respectively, in my view the Fair Value of NTPC comes at Rs. 214. One can buy NTPC with a target price of Rs. 214.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 175.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	57,407.00	64,830.00	67,459.00	73,207.00
NET PROFIT (Rs. Crs)	9,103.00	9,223.00	10,166.00	11,474.00
EPS (Rs.)	11.00	11.20	12.30	13.90
PE (x)	15.00	15.10	13.70	12.20
P/BV (x)	2.10	1.90	1.70	1.60
EV/EBITDA (x)	11.40	10.20	11.60	11.40
ROE (%)	13.40	12.60	12.80	13.10
ROCE (%)	11.00	11.50	11.00	10.80

I would buy NTPC with a price target of Rs. 214.00 for the 6 month target and for short term it would be Rs. 175.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 141.00 on your every purchase.

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