Q2FY24 Review: NTPC: Good operating performance offset slow execution

30 Oct 2023 , 02:36 PM

NTPC’s Q2FY24 standalone (S/A)/consolidated PAT was up 17%/ 38% YoY, on the back of good operational performance and turnaround in JVs. It added 1.5GW capacity in Q2, predominantly on S/A basis. Given the current power demand-supply mismatch, NTPC plans to award 11.2GW of thermal projects over the next 18 months, increasing visibility on long-term growth. Analysts of IIFL Capital Services maintain their estimates, as better operating performance offset slower RE execution. Analysts of IIFL Capital Services reiterate NTPC as our preferred pick in the sector. 

Good operating performance: 

NTPC’s Q2FY24 standalone/ consolidated PAT is up 17%/38%, on the back of better operational performance, turnaround in JV’s (Rs4bn vs Rs1.5bn loss YoY), and a lower tax rate. It operated its coal/gas plants at 76%/18% PLF (up 2%/15% YoY). Coal PAF was down to 90% vs 94% YoY, on account of overhaul and maintenance activities at plants that led to higher fixed cost under recoveries (Rs3.8bn vs Rs1.4bn YoY) and lower incentives (Rs1.2bn vs Rs2.2bn YoY) — expected to normalise in H2. Treasury income fell 21% YoY, due to lower surcharge income. OCF/ Ebitda conversion improved to 98% vs 55% YoY. 

Improving outlook on thermal cap adds: 

During the post-earnings call, NTPC stated: 1) It plans to award 11.2GW of new thermal projects over the next 18 months, in addition to the current pipeline of 10GW thermal projects. 2) Coal stock at some plants is under stress, but the situation should improve going forward. 3) NTPC is investing in SOx/ NOx emission control equipment and benefits should start accruing soon. 4) No firm decision on monetisation of its 100% RE sub; it aims for 16GW RE capacity by FY26 (current: 3.3GW). 5) Management did not comment on the upcoming CERC tariff regulations for FY25-29. 6) Capex for FY24 is pegged at Rs280bn and should increase subsequently as projects are awarded. 

Maintain estimates; reiterate BUY: 

Analysts of IIFL Capital Services maintain their FY24-26 estimates, as the slow execution of RE projects and low surcharge income offset the better operational performance. At 11x P/E and 1.4x P/B on FY25, the stock is above distress multiples; and earnings growth shall drive stock prices hereon. Analysts of IIFL Capital Services forecast NTPC to deliver S/A/ consolidated PAT growth of 4%/10% through FY24-26, on the back of 4-6GW p.a. capacity additions. NTPC is well positioned to benefit from the increase in thermal capacity being awarded and remains their preferred pick in the sector; BUY.