Q3FY23 Review: NTPC: Good performance, but the best is yet to come

30 Jan 2023 , 12:01 PM

NTPC’s Q3FY23 standalone PAT was up 5% YoY, despite 18% YoY lower treasury income. This was on the back of operating efficiency (higher incentives), as aggregate capacity was also up 4% (exM&A). Over the past 12 months, the company’s thermal capacity was up by 0.7GW YoY, excluding the M&A (1.7GW). Its coal-based plants operated at 69% PLF, while PAF was 93% vs 86% YoY and 94% QoQ. Coal supplies were adequate for the quarter (~97% ACQ realisation); 18% YoY fall in treasury income (lower surcharge) was more than offset by operational efficiency leading to earnings growth. During Q3, NTPC has added 1.3GW Solar capacity.

During post-earnings call, NTPC stated: 1) It is on track to add 6-7GW p.a. through FY25, which is a combination of Thermal and Renewables (RE). As such, the pipeline for RE projects remains healthy at 4.7GW, as of Q3. 2) Outlook on Power demand growth is strong, and peak Power demand will soon exceed 250GW in next couple of quarters. As such, there is dire need to add thermal capacity. 3) Coal supplies for next 12 months look adequate, as CIL and its own captive mines have been ramping up production. 4) While SEBs have not increased tariffs, the dues are being settled on timely basis, due to increased financial support from various schemes — and to that extent — working capital remains under check. 5) Induction of strategic investor in NREL (NTPC’s RE subsidiary) should be complete by Q4FY23; no firm valuation or even a range, was stated for the transaction.

NTPC is well-poised to deliver 8/12% p.a. earnings growth through FY23-25, on the back of 6-7GW p.a. capacity adds. Analysts of IIFL Capital Services forecasts do not assume any changes to benchmark ROE, which are due for revision from FY25. As such, valuations relative to defensive revenue model, visibility of earnings, and improving payout ratio — remain cheap.

Analysts at IIFL Capital Services maintain 8%/12% standalone/ consolidated PAT growth through FY23-25, and re-iterate Buy with target price of 200.