In line with our expectation NTPC reported revenues of Rs163bn registering 5% yoy and 6% qoq growth
PLF for NTPC coal station during the Q4 FY12 stood at 91% as against 84% in Q3 FY12, higher by ~6%. We believe higher PLF allowed company to register healthy incentive and aided in reporting revenue at the current level. Though the revenues are in line with estimates, the result would have been better primarily on account of higher fuel cost. But, NTPC continued to make payments on pre-revised rates of CIL (UHV rates), factoring the increased coal price as a contingent liability which ultimately led to lower realisations. We expected higher fuel cost realization (The fuel cost increased to 64.2% as a percentage of sales from 62.7% in last year) will lead to higher reported net sales.
The PLF increased to 91% in Q4 FY12 compared to 84% in Q3 FY12 and declined by 2% yoy
NTPC reported better PLF and PAF compared to Q3FY12. The company losses due to lower fuel availability decline in Q4 FY12 with higher PAF of 94.7% as against PAF of 85.2% in Q3 FY12. But, the losses are still quite significant at 7bn units in yearly basis. But, lost out on account of SEBs backing down and lowers realization which ultimately resulted in lower income.
Net income registered de-growth of 7% yoy to Rs26bn
NTPCs reported PAT was impacted significantly by higher tax rate of 27.5% as against 14.6% in Q4FY11. Higher taxes were led by the deferred tax assets of Rs1.4bn. The company also lost out on account of SEBs backing down and lowers realization which ultimately resulted in lower income.
Outlook & Valuation
With assured return model and increasing capacities, NTPC’s earnings visibility remains high. We expect 2400MW capacity addition in next two years. We keep our ROE assumption at 15.5% and we expect lower incentive income for the company accordance with a change in CERC regulation. Currently, the concerns over domestic fuel availability and deteriorating health of SEBs make the utilities space risky. But, since the stock has corrected by more than 15% in last month and it’s being a good defensive play which leades to favourable risk reward, we rate NTPC BUY with a 9-month price target of Rs171/share.
Key take-away from the conference call