COMPANY UPDATE Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 GEOJIT RESEARCH Nov-16 Dec-16 Jan-17 Feb-17 RETAIL EQUITY RESEARCH NTPC Ltd Power BSE CODE: 532555 NSE CODE: NTPC Bloomberg CODE: NTPC:IN SENSEX: 28,984 BUY Rating as per Large cap 12months investment period CMP Rs160 TARGET Rs189 RETURN 18% 2 nd March, 2017 Long term outlook intact NTPC is the largest power generation company in India, with an installed capacity of 47,178 MW. Reported heathy revenue growth of 11% on standalone basis in Q3FY17 led by improvement in realisation (10%) & higher power generation (1%). Owing to higher power & fuel cost, EBITDA margin declined 40bps to 27.1%, while PAT fell ~7% due to higher tax rate. Commercial capacity addition remains weak in 9MFY17 at ~800 MW. However, we expect the same to gain pace in Q4FY17 (management is targeting to commercialise more than 3,000 MW). We expect revenue/pat growth of 11%/6% CAGR over FY16-19E led by capitalisation of projects and increase in regulated equity. The stock is currently trading at 1.4/1.3x FY17/18E P/B. Maintain Buy rating with a revised target price of Rs189 (based on 1.4x FY19E P/B) on the back of higher commercialisation of capacities going ahead. Higher realisation offset muted volumes Despite muted growth in power generation & energy sent out (1% ), NTPC reported decent revenue growth of 11% on standalone basis in Q3FY17 on the back of healthy growth in realisation (~10% ). Further increase in regulated equity during the quarter also supported the performance. PLF for its coal & gas based power plants declined to 77.21% & 23.85% as against 78.23% & 28.47% in Q3FY16, respectively. PAF on the other hand came in at 91.49% & 93.34% in Q3FY17. Regulated equity increased by a robust 8% to Rs42,482cr. We expect NTPC s commercial capacity to grow at ~8% CAGR over FY16-19E. Higher fuel cost weighed on margin In line with healthy revenue growth, EBITDA grew by 9% in Q3FY17. However, EBITDA margin decreased by 40bps to 27.1% owing to higher power & fuel cost (up 14% ). Notably net profit posted a huge decline of 7.5% during the quarter predominantly due to higher tax rate at ~20% as against ~4% in Q3FY16. Await further clarity on GCV Besides, the company has started measuring GCV (gross calorific value) of coal at the secondary crusher point from Q3FY17 as against wagon unloading point until Q2FY17. According to the management this change did not have any significant impact on the profitability, however full impact will only be known in the next few quarters. Capacity addition on track The company is targeting to add ~4000-4500 MW of power capacity in FY17. Capacity addition until 9MFY17 stood at mere ~1,300 MW translating into huge capacity commissioning of nearly 3,000 MW in Q4FY17. Further the management has guided for a robust capacity addition of ~4,500 MW in FY18, while it is expecting to commercialise ~4,000 MW. Considering its robust capacity expansion plan, we expect NTPC s sales to grow at 11% CAGR over FY16-19E. Outlook & Valuation We are optimistic on the stock given NTPC s high visibility on earnings growth on the back of its aggressive capacity addition plans. Moreover, its regulated business model with assured RoEs and secured power purchase agreements bodes well for growth. We maintain our Buy rating on the stock with a revised target price of Rs189 (based on 1.4x FY19E P/B), an upside of 18%. Company Data Market Cap (cr) Enterprise Value (cr) Rs131,969 Rs258,187 Outstanding Shares (cr) 824.5 Free Float 25% Dividend Yield 2.0% 52 week high Rs178 52 week low Rs120 6m average volume (lakh) 45.7 Beta 0.7 Face value Rs10 Shareholding % Q1FY17 Q2FY17 Q3FY17 Promoters 70.0 69.7 69.7 FII s 11.0 11.1 10.8 MFs/Insti 16.8 17.0 17.4 Public 1.8 1.8 1.7 Others 0.4 0.4 0.4 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return -1% 1% 31% Absolute Sensex 9% 2% 22% Relative Return* -10% -1% 9% *over or under performance to benchmark index 170 150 130 110 NTPC Sensex (Rebased) Consolidated (Rs.cr) FY17E FY18E FY19E Sales 82,032 94,303 108,252 Growth (%) 4.2 15.0 14.8 EBITDA 22,483 26,035 30,319 Margin(%) 27.4 27.6 28.0 PAT Adj 9,076 10,277 12,111 Growth (%) (10.9) 13.2 17.8 Adj.EPS 11.0 12.5 14.7 Growth (%) (10.9) 13.2 17.8 P/E 14.5 12.8 10.9 P/B 1.4 1.3 1.2 EV/EBITDA 11.5 10.5 9.3 RoE (%) 9.9 10.4 11.4 D/E 1.4 1.4 1.4
Quarterly Financials (Standalone) Profit & Loss Account (Rscr) Q3FY17 Q3FY16 Q2FY17 QoQ 9MFY17 9MFY16 Sales 19,396 17,486 10.9 19,398 (0.0) 57,857 52,519 10.2 EBITDA 5,251 4,804 9.3 5,396 (2.7) 15,818 12,440 27.2 EBITDA Margin (%) 27.1 27.5 (40)bps 27.8 (74)bps 27.3 23.7 15bps Depreciation 1,485 1,372 8.3 1,434 3.6 4,315 3,847 12.2 EBIT 3,766 3,432 9.7 3,962 (4.9) 11,504 8,594 33.9 Interest 909 842 7.9 890 2.2 2,699 2,420 11.5 Other Income 250 239 4.7 191 31.2 599 758 (21.0) Exceptional Items - - - - - - - - Regulatory Income/ (loss) (25) (38) (34.4) (4) 468.8 (26) 16 (264.2) PBT 3,082 2,790 10.5 3,258 (5.4) 9,377 6,947 35.0 Tax 613 121 405.3 762 (19.5) 2,073 (1,029) (301.4) Minority Interest/ P/L of Associates - - - - - - - - Reported PAT 2,469 2,669 (7.5) 2,496 (1.1) 7,303 7,977 (8.4) Adjustment - - - - - - - - Adj PAT 2,469 2,669 (7.5) 2,496 (1.1) 7,303 7,977 (8.4) No. of shares (cr) 824.5 824.5-824.5-824.5 824.5 - EPS (Rs) 3.0 3.2 (7.5) 3.0 (1.1) 8.9 9.7 (8.4) Operating Performance Q3FY17 Q3FY16 Q2FY17 QoQ 9MFY17 9MFY16 Gross generation (BUs) 61.4 60.8 1.0 60.6 1.3 186.5 179.6 3.8 Commercial generation (BUs) 61.3 60.5 1.2 60.6 1.2 186.4 178.9 4.2 Energy sent out (BUs) 57.3 56.6 1.2 56.5 1.4 174.0 167.0 4.2 PLF data (in %) PLF-COAL 77.2% 78.2% (1.3) 74.7% 3.4 77.7% 77.7% 0.0 PLF-GAS 23.9% 28.5% (16.2) 23.6% 1.2 24.6% 27.6% (10.8) PLF-HYDRO 20.2% 20.7% (2.7) 92.6% (78.2) 56.7% 48.8% 16.1 PAF data (in %) PAF-COAL 91.5% 92.8% (1.4) 89.8% 1.9 90.3% 90.8% (0.6) PAF-GAS 93.3% 96.8% (3.6) 97.0% (3.7) 94.3% 97.0% (2.8) PAF-HYDRO 107.4% 95.1% 12.9 108.0% (0.6) 107.3% 98.7% 8.7 Coal Supply position (in MMT) Domestic coal 41.6 38.6 7.7 36.0 15.6 117.8 110.4 6.7 Imported coal 0.1 1.9 (93.8) 0.3 (53.8) 0.9 8.4 (88.7) Gas Consumption (in MMSCMD) 5.0 6.1 (17.5) 5.1 (1.6) 5.2 5.7 (9.1) Source: Company, Geojit Research Change in estimates Old estimates New estimates Change % Year / Rscr FY17E FY18E FY17E FY18E FY17E FY18E Revenue 85,421 96,291 82,032 94,303 (4) (2) EBITDA 23,412 27,932 22,483 26,035 (4) (7) Margin (%) 27.4 29.0 27.4 27.6 0 (140bps) Adj. PAT 9,431 11,585 9,076 10,277 (4) (11) Adj. EPS 11.4 14.1 11.0 12.5 (4) (11)
Consolidated Financials Profit & Loss Account Sales 80,622 78,706 82,032 94,303 108,252 % change 2.1 (2.4) 4.2 15.0 14.8 EBITDA 17,512 19,163 22,483 26,035 30,319 % change (11.1) 9.4 17.3 15.8 16.5 Depreciation 5,565 6,153 6,920 8,343 10,040 EBIT 11,948 13,010 15,563 17,692 20,279 Interest 3,570 4,151 5,046 5,879 6,289 Other Income 2,079 1,245 971 1,195 1,339 PBT 10,456 10,104 11,489 13,009 15,330 % change (27.8) (3.4) 13.7 13.2 17.9 Tax 464 (59) 2,413 2,732 3,219 Tax Rate (%) 4.4 (0.6) 21.0 21.0 21.0 Reported PAT 9,986 10,183 9,076 10,277 12,111 Adj* - - - - - Adj PAT 9,986 10,183 9,076 10,277 12,111 % change (12.4) 2.0 (10.9) 13.2 17.9 No. of shares (cr) 824.5 824.5 824.5 824.5 824.5 Adj EPS (Rs) 12.1 12.3 11.0 12.5 14.7 % change (12.4) 2.0 (10.9) 13.2 17.9 DPS (Rs) 2.5 3.4 3.4 3.4 3.4 Cash flow Pre-tax profit 10,456 10,104 11,489 13,008 15,330 Depreciation 5,580 6,086 6,920 8,343 10,040 Changes in W.C (1,169) (3,642) (812) (2,277) (2,578) Others 1,889 4,322 4,074 4,683 4,949 Tax paid (2,010) (1,458) (2,413) (2,732) (3,219) C.F.O 14,746 15,411 19,258 21,026 24,521 Capital exp. (19,177) (23,247) (28,000) (28,000) (25,000) Change in inv. 1,639 1,654 - - - Other invest.cf 1,704 953 971 1,195 1,339 C.F - investing (15,834) (20,641) (27,029) (26,805) (23,661) Issue of equity - 0 - - - Issue/repay debt 20,581 8,053 15,000 14,000 10,000 Dividends paid (12,388) (3,351) (3,351) (3,351) (3,351) Other finance.cf (9,667) (8,222) (5,046) (5,879) (6,289) C.F - Financing (1,475) (3,521) 6,603 4,771 361 Chg. in cash (2,563) (8,751) (1,167) (1,008) 1,221 Closing cash 14,252 5,393 4,227 3,219 4,440 Balance Sheet Cash 14,252 5,393 4,227 3,219 4,440 Accounts Receivable 9,250 10,174 10,604 12,190 13,993 Inventories 7,972 7,959 7,858 8,880 10,042 Other Cur. Assets 8,430 10,686 11,080 11,862 12,714 Investments 1,902 358 358 358 358 Gross Fixed Assets 144,391 163,432 191,432 236,432 278,432 Net Fixed Assets 91,883 104,714 125,794 162,451 194,411 CWIP 67,524 81,332 81,332 64,332 47,332 Intangible Assets 1 - - - - Def. Tax (Net) (1,266) (1,409) (1,409) (1,409) (1,409) Other Assets 18,363 19,832 20,824 21,865 22,958 Total Assets 218,311 239,040 260,667 283,748 304,840 Current Liabilities 19,061 19,016 19,393 20,770 22,266 Provisions 7,996 8,933 9,317 9,951 10,638 Debt Funds 102,252 114,380 129,380 143,380 153,380 Other Liabilities 4,625 4,675 4,816 4,960 5,109 Equity Capital 8,245 8,245 8,245 8,245 8,245 Reserves & Surplus 73,849 80,951 86,677 93,602 102,362 Shareholder s Fund 82,094 89,197 94,922 101,848 110,608 Minority Interest 888 893 893 893 893 Deferred Revenue 1,394 1,947 1,947 1,947 1,947 Total Liabilities 218,311 239,040 260,667 283,748 304,840 BVPS (Rs) 99.6 108.2 115.1 123.5 134.1 Ratios Y.E March FY15 FY16 FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 21.7 24.3 27.4 27.6 28.0 EBIT margin (%) 14.8 16.5 19.0 18.8 18.7 Net profit mgn.(%) 12.4 12.9 11.1 10.9 11.2 ROE (%) 11.8 11.9 9.9 10.4 11.4 ROCE (%) 7.9 7.3 7.7 8.0 8.5 W.C & Liquidity Receivables (days) 41.5 46.7 46.7 46.7 46.7 Inventory (days) 47.3 50.6 49.8 49.1 48.7 Payables (days) 41.1 41.8 41.9 41.9 41.9 Current ratio (x) 1.5 1.2 1.2 1.2 1.3 Quick ratio (x) 1.2 0.9 0.9 0.9 0.9 Turnover &Levg. Gross asset T.O (x) 0.6 0.5 0.5 0.4 0.4 Total asset T.O (x) 0.4 0.3 0.3 0.3 0.4 Int. covge. ratio (x) 3.3 3.1 3.1 3.0 3.2 Adj. debt/equity (x) 1.2 1.3 1.4 1.4 1.4 Valuation ratios EV/Sales (x) 2.7 3.1 3.1 2.9 2.6 EV/EBITDA (x) 12.6 12.6 11.5 10.5 9.3 P/E (x) 13.2 13.0 14.5 12.8 10.9 P/BV (x) 1.6 1.5 1.4 1.3 1.2
Recommendation Summary (last 3 years) Dates Rating Target 200 190 180 170 160 150 140 130 120 110 100 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Source: Bloomberg, Geojit Research 01 November 2013 BUY 187 03 February 2014 BUY 170 21 August 2014 HOLD 145 03 February 2015 HOLD 157 03 August 2015 BUY 142 01 June 2016 BUY 161 24 August 2016 BUY 176 2 March 2017 BUY 189 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Abhijit Kumar Das, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
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