NTPC (Q3 FY13)

CMP Rs164, Target Rs187, Upside 14.0%

• Top line missed the estimate by 5% but PAT growth in line with expectations
• NTPC reported operating revenues of Rs15.8bn registering 3% yoy growth
• Reported PAT registered growth of 19% yoy to Rs26bn
• Generation units grew by 7% yoy while net sales grew by 3% yoy on account of lower realisations
• The coal PAF improved to 88.5% registering improvement of 8.5% percentage points qoq and higher by 3.3% percentage points yoy
• We upgrade NTPC to BUY from MP earlier with a revised 9-month target price of Rs187

Result table (Standalone)

(Rs mn)	Q3 FY13	Q3 FY12	%yoy	Q2 FY13	% qoq
Generation (BU)	60.2	56.4	6.7	52.7	14.1
Sales (BU)	56.3	52.9	6.4	48.9	15.2
Realisation (Rs/unit)	2.8	2.9	(3.3)	3.3	(15.0)
Net sales	157,749	153,323	2.9	161,197	(2.1)
Material cost	(100,982)	(107,933)	(6.4)	(99,327)	1.7
Personnel cost	(6,916)	(7,188)	(3.8)	(8,965)	(22.8)
Other overheads	(9,899)	(9,162)	8.0	(10,663)	(7.2)
Operating profit	39,952	29,040	37.6	42,243	(5.4)
OPM (%)	25.3	18.9	639 bps	26.2	(88) bps
Depreciation	(8,288)	(7,560)	9.6	(7,865)	5.4
Interest	(5,304)	(4,496)	18.0	(3,035)	74.8
Other income	7,546	9,131	(17.4)	10,482	(28.0)
PBT	33,907	26,114	29.8	41,825	(18.9)
Tax	(7,940)	(4,324)	83.6	(10,402)	(23.7)
Effective tax rate (%)	23.4	16.6	686 bps	24.9	(145) bps
Reported PAT	25,968	21,790	19.2	31,424	(17.4)
Adjusted PAT	25,500	18,810	35.6	20,469	24.6
Adj. PAT margin (%)	32.6	26.5	390 bps	12.7	347 bps
EPS (Rs)	25.0	19.7	35.6	9.9	24.6

Source: Company, India Infoline Research

NTPC reported operating revenues of Rs15.8bn registering 3% yoy growth; top line missed the estimate but PAT growth in line with expectations
NTPC reported operating revenues of Rs15.8bn registering 3% yoy growth. Top line missed our estimate by 5% but PAT growth in line with expectations Reported PAT registered growth of 19% yoy to Rs26bn. The net income exactly came in line with our estimates largely on the back of sharp decline in material cost and prior period adjustments. Revenue miss was primarily on account of lower fuel costs (cost plus business model) even though generation continued to improve (7% yoy, 12% qoq). NTPC in 9M FY13 commissioned a total of 3,820MW capacity at group level. We believe with improving PAF and robust capacity addition, the growth in sales and ROE is inevitable.

PLF and PAF improvement are signs of recovery
NTPC coal station PAF during Q3 FY13 stood at 88.6% as against 74.9% in Q2 FY13, higher by ~13.7% qoq and 3.3% yoy. NTPC received 41.1mmt of coal in 3QFY13 as against 33.6mmt in 3QFY12, up 22% qoq. Resultantly PAF was higher than estimated. Domestic coal supply was higher by 19.5% qoq and 65% yoy, to 38.3mmt in Q3FY13. Also, 76.4% qoq ramp-up in coal imports from 1.6mmt in 2QFY13 to 2.8mmt in 3QFY13, helped improve coal-based PAF. PLF was also high at 84.1% in Q3FY13 v/s 75% in last quarter.

Cost-Analysis

As a % of net sales	Q2FY13	Q2FY12	bps yoy	Q1FY13	bps qoq
Material cost	64.0	70.4	(638)	61.6	240
Personnel cost	4.4	4.7	(30)	5.6	(118)
Other overheads	6.3	6.0	30	6.6	(34)
Total costs	74.7	81.1	(639)	73.8	88

Source: Company, India Infoline Research

Operational Highlights

• As on December 2012, total installed capacity of NTPC group is 39,674MW, which includes 5,802MW capacity owned JV subsidiary companies. The commercial capacity of NTPC group stood at 38,236MW as on date.
• NTPC commissioned 3,820MW during current fiscal till date.
• NTPC is still awaiting formal communication regarding de-allocation of the three coal mines.

Outlook & Valuation
With assured return model and increasing capacities, NTPC’s earnings visibility remains high. Currently, the concerns over domestic fuel availability and deteriorating health of SEBs make the utilities space risky. But, for NTPC Improved pace of capacity addition (3 GW up to 3QFY13) and a resilient business model increase visibility of the XIIth plan targets. We believe currently the valuation in terms of risk reward is attractive. But disinvestment plan will continue to keep the stock range bound in near term. We upgrade NTPC to BUY from MP earlier with a revised 9-month target price of Rs187

Financial Summary

Y/e 31 Mar (Rs m)	FY12	FY13E	FY14E	FY15E
Revenues	658,937	684,541	780,426	882,567
yoy growth (%)	10.7	3.9	14.0	13.1
Operating profit	154,411	154,459	178,817	202,750
OPM (%)	23.4	22.6	22.9	23.0
Reported PAT	98,128	123,605	135,334	149,228
yoy growth (%)	4.9	26.0	9.5	10.3
EPS (Rs)	11.9	15.0	16.4	18.1
P/E (x)	13.8	10.9	10.0	9.1
Price/Book (x)	1.8	1.7	1.5	1.4
EV/EBITDA (x)	11.0	12.4	11.3	9.9
Debt/Equity (x)	0.8	1.1	1.1	1.2
RoE (%)	13.8	15.9