NTPC Ltd. Results in line with estimates, BUY for attractive valuations. Power. EBITDA margins up at 26% (+700bps QoQ): EBITDA margins

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Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 NTPC Ltd 11 May 2012 105 Power Result Review Rating: BUY Current Price: Rs 148 Target Price: Rs 189 Upside: 28% Stock Data 52-week high/low (Rs) 192 / 146 O/S shares (mn) 8245.5 Mkt Cap Rs (bn) 1, 231.9 Avg Daily Vol (mn) 2.06 Bloomberg Code Reuters Code Shareholding (%) IFIN Research Sachin Mehta +91-22-43335134 sachinmehta@ifinltd.in NTPC IN NTPC.BO Mar-12 Promoters 84.5 FIIs 4.0 DIIs 7.7 Public 3.8 95 85 75 NTPC Sensex Results in line with estimates, BUY for attractive valuations In, net sales increased 6% QoQ and PAT was up 22% QoQ and down 7% YoY. Despite flat 1% YoY and -0.4% QoQ decrease in sale price/kwh to Rs2.9, sales revenue increased as net units sold was up by 3% YoY and 7% QoQ. Increase in PAT on a sequential basis is attributed to: 1) higher operating leverage due to a higher PLF of 91% at the coal station vs. 84% in ; 2) higher incentives and subsiding underrecovery of fixed capacity charges due to a 11% QoQ increase in PAF of coal stations to 95% and 4% QoQ increase for gas at 99%; and 3) higher EBITDA margins at 26% vs. 19% in and 28% in. EBITDA margins up at 26% (+700bps QoQ): EBITDA margins increased mainly due to higher PLF and PAF of coal stations. EBITDA/unit sold at Rs0.75 is up by 36% QoQ and down by 5% YoY. NTPC has accounted unit fuel cost and unit sale price as per the UHV based coal prices and the difference between GCV and UHV based coal prices at Rs 3.99 bn (Rs 0.07/kWh) have been reflected as contingent liability. On materialization, impact on earnings would be neutral as the unit sale price and unit fuel cost would be increased by the same amount. Higher other income and lower interest cost aid PAT: Incremental post-tax other income of Rs3.1bn, along with a 8% YoY decrease in interest cost, contributed 14% to EPS in at Rs0.43. APAT down 5% YoY in and flat in FY12: Neutralizing the impact of prior-period sales, write-back of AAD, the depreciation impact, income tax, FERV, fixed charges and other adjustments, like-to-like PAT decreased 5% YoY to Rs21.9bn, as against the 7% YoY decline reported. Capacity addition highlights: We expect standalone total capacity addition of 2660MW in FY13, 2980MW in FY14E and 2230MW capacity in FY15E. Based on the commissioning schedule, NTPC would receive earnings from pro-rata adjusted capacity of 1,967MW in FY13E and 1743MW in FY14E. NTPC has ~11GW of capacity under construction which provides firm visibility. Valuation: We maintain BUY on NTPC with a DCF-based target price of Rs189 (Rs199 earlier) after rolling over to FY12 as base year in our DCF model. At CMP, NTPC trades at a P/B of 1.5x FY13E which is at its historical trough P/B(x) on a one-year forward basis. Maintain BUY for firm earnings visibility and attractive valuations. Y/E Mar (Rs. mn) FY10 FY11 FY12E FY13E Net Sales 463,226 548,740 611,449 688,763 EBITDA 123,976 139,558 140,511 166,233 Net Profit 87,282 91,026 92,237 101,254 EPS (Rs) 10.5 11.0 11.2 12.3 EPS (growth) 4% 5% 1% 10% Book Value/(Rs.) 77.7 83.3 90.6 98.9 PER (x) 14.1 13.4 13.2 12.1 P/BV (x) 1.9 1.8 1.6 1.5 EV/EBITDA (x) 11.7 10.7 11.0 9.9 ROE (%) 14.0 13.7 12.9 13.0 ROCE (%) 12.8 13.2 11.9 11.8

11 May 2012 NTPC Exhibit 1: NTPC results snapshot Income Statement INR mn YoY QoQ FY11 FY12 Units sold (BU) 56.1 52.6 54.3 3% 7% 206.6 206.7 Net Sales 162,636 153,323 155,209 5% 6% 548,740 611,449 Fuel Cost 104,430 107,933 97,256 7% -3% 353,738 416,355 Total Operating Expenses 121,512 124,769 117,002 4% -3% 425,635 480,025 EBITDA 42,107 29,075 42,793-2% 45% 139,558 140,511 EBITDA (%) 26 19 28 25 23 Depreciation 7,363 7,560 6,981 5% -3% 24,857 27,917 EBIT 41,444 30,125 37,867 9% 38% 141,987 140,378 Interest 4,870 4,496 5,300-8% 8% 21,491 17,116 PBT 36,574 25,628 32,568 12% 43% 120,496 123,262 Tax 10,640 4,324 4,750 124% 146% 29,470 31,024 Tax Rate (%) 29 17 15 24 20 RPAT 25,934 21,304 27,818-7% 22% 91,026 92,237 EPS 3.1 2.6 3.4-7% 22% 11.0 11.2 Operational Performance Installed Capacity (MW) 37,014 36,014 34,194 8% 3% 34,194 37,014 Commissioned Capacity (MW) 31,412 31,052 30,252 4% 1% 30,252 31,412 Total Gross Generation (BU) 60 56 58 4% 7% 221 222 Energy sent out (BU) 56 53 54 3% 7% 207 207 PLF Coal Station (%) 91 84 94-3% 9% 88 85 PLF Gas Station (%) 67 71 72-8% -5% 72 65 PAF Coal Station (%) 95 85 96-2% 11% 92 88 PAF Gas Station (%) 99 94 97 2% 4% 93 94 IFIN Research 2

1QFY09 2QFY09 3QFY09 4QFY09 1QFY09 2QFY09 3QFY09 4QFY09 11 May 2012 NTPC Result Highlights APAT for FY12 has remained flat YoY at Rs 83.3bn In, net units sold increased 3% YoY and sales revenue increased by 5% YoY. PBT earnings increased by 12% YoY and 43% QoQ at Rs 36.57bn. But PAT was down 7% YoY at Rs25.9bn due to: 1) Lower EBITDA margins at 26% in vs 28% in ; 2) Increase in effective tax rate to 29% in vs 15% in ; 3) sub-optimal operating leverage due to lower PLF at 91% at coal stations vs. 94% in and 8% YoY decline in PLF of gas stations at 67%; 4) lower incentives and under-recovery of fixed capacity charges due to a 2% YoY decline in PAF of coal stations to 95%; and 5) grossing-up of RoE by corporate tax rates in for FY11. EBITDA/kWh (based on unit sold) increased 35% QoQ and down by 5% YoY to Rs0.75/kWh Exhibit 2: PLF Cyclical in nature 100% PLF of coal stations dropped YoY mainly due to lower availability of coal at few stations, whereas gas stations operated at sub-optimal PLF to limit the quantum of the adverse impact from demand back-down by SEBs. 90% 80% 70% 60% 50% PLF - Coal PLF - Gas 100% Exhibit 3: PAF Stable and poised to increase 95% 90% However, overall PAF for coal stations at ~ 95% and 99% for gas based stations in is a healthy sign and moderates our concerns on recovery of fixed costs. 85% 80% 75% PAF - Coal PAF - Gas IFIN Research 3

4QFY09 4QFY09 11 May 2012 NTPC Exhibit 4: EBITDA/unit Stable on a YoY basis at Rs 0.75 EBITDA/unit sold increased by 36% QoQ and is down by 5% YoY at Rs 0.75/kWh. The increase is mainly due to higher PLF/PAF, thus increasing the operating leverage. 2.80 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 - Fuel Cost/unit (Rs) LHS EBITDA/unit (Rs) RHS Exhibit 5: EBITDA margin estimated to stabilize at 24% EBITDA margin increased 700bps QoQ and declined 200 bps YoY at 26%. We estimate EBITDA margin to stabilize at 24% in FY13. 40% 35% 30% 25% 20% 15% 25% 20% 15% 10% 5% 0% EBITDA Margin (LHS) PAT Margin (RHS) IFIN Research 4

Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 11 May 2012 NTPC Valuation & View Since April 2005, on a one-year forward P/B, NTPC has traded at an average P/B of 2.2x. We revise our FY13 estimates to factor-in; 1) PLF of 80% for coal stations and 62% for gas based stations; and 2) RoE to be grossed up at corporate tax rates in FY13E. Considering the sharp decline in NTPC s share price which is available at Apr-05 share prices, we believe negativities have been priced-in. We maintain our BUY rating with target price of Rs 189 due to its stable business model, strong financials, firm visibility on capacity addition, near fuel security in place and attractive valuations. Exhibit 6: Change in estimates Old FY13E New % Change NTPC currently trades at a P/B of 1.5x FY13E. Net Sales 733,919 688,763-6% PAT 101,675 101,254 0% Source: IFIN Research At our target price of Rs189, it would trade at a P/B of 1.9x FY13E We value the core business using discounted cash flow to equity holders with WACC of 10.8%, cost of equity of 11.6% and terminal growth rate of 4% up to FY 2025E. We arrive at PV of Rs. 189 per share. Exhibit 6: DCF Assumptions WACC DCF Value Risk free rate 8.0% Perpetual Growth 4.0% Beta 0.8 PV of forecast period i.e. FY25E (Rs bn) Risk Premium 5.0% PV of terminal value (Rs bn) 955 Cost of Equity 11.6% Firm Value (Rs bn) 1,826 Cost of Debt (post Tax) 9.6% Less: Net Debt (Rs bn) -321 Debt : Equity 0.6 870 Equity Value (Rs bn) 1,557 WACC 10.8% Per share (Rs.) 189 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Exhibit 8: P/B (x) on 1 Year forward basis 4.0x 2.2x 1.5x P/B (X) Peak P/B (x) Average P/B (x) Trough P/B (x) IFIN Research 5

11 May 2012 NTPC Financials Income Statement (Rs Million) Balance Sheet (Rs Million) Y/E March FY10 FY11 FY12 FY13E Y/E March FY10 FY11 FY12 FY13E Net Sales 463,226 548,740 611,449 688,763 Share Capital 82,455 82,455 82,455 82,455 Sales Growth (%) 11% 18% 11% 13% Reserves 558,028 604,388 664,757 733,113 Fuel cost 294,628 353,738 416,355 452,225 Net Worth 640,483 686,843 747,212 815,568 Personnel cost 24,124 27,897 30,905 35,541 Debt 377,970 431,882 482,410 555,457 Admin Exp 20,940 28,478 32,766 36,972 EBITDA 123,976 139,558 140,511 166,233 Total Current Liabilities Total Equity & Liabilities 110,284 138,348 178,755 154,109 1,128,738 1,257,074 1,408,378 1,525,134 EBITDA (%) 27% 25% 23% 24% Net Block 347,612 376,280 373,034 436,461 Depreciation 26,501 24,857 27,917 33,328 CWP 321,043 398,785 497,827 544,363 Other Income 28,562 8,881 27,784 20,822 Investments 148,071 123,448 112,064 99,993 Tax 21,573 29,470 31,024 25,313 Current Assets Tax Rate (%) 20% 21% 25% 20% Debtors 66,514 79,243 58,325 96,427 Adjusted PAT 87,282 91,026 92,237 101,254 Cash & Bank Balance 144,595 161,853 161,461 132,305 Extraordinary Items 0 0 0 0 Loans and Advances 55,131 66,011 66,380 69,699 Reported PAT 87,282 91,026 92,237 101,254 Other Current Assets 45,771 51,453 139,286 145,886 PAT Growth (%) 6% 4% 1% 10% Total Assets 1,128,738 1,257,074 1,408,378 1,525,134 Ratios Cash Flow Statement (Rs million) Y/E March FY10 FY11 FY12 FY13E Y/E March FY10 FY11 FY12 FY13E EPS (Rs) 10.5 11.0 11.2 12.3 Consolidated PAT 87,282 91,026 92,237 101,254 CEPS (Rs) 13.8 14.1 14.6 16.3 Depreciation 26,501 24,857 27,917 33,328 BV (Rs.) 77.7 83.3 90.6 98.9 DPS 4.4 4.5 4.2 4.7 Change in deferred taxes/provisions Cash Flow from Operation 8,037 8,769 (1,249) (5,824) 121,820 124,652 118,905 128,758 Debt/Equity (x) 0.6 0.6 0.6 0.7 Inc/(Dec) in WC (19,025) (6,444) (17,643) (77,229) Leverage (x) 1.8 1.8 1.9 1.9 Operating Cash Flow 102,795 118,208 101,262 51,530 Valuation (x) Capex (101,965) (132,846) (125,292) (144,869) P/E 14.1 13.4 13.2 12.1 Free Cash Flow 829 (14,638) (24,030) (93,340) EV/EBITDA 11.7 10.7 11.0 9.9 Equity Raised - - - - EV/Sales 3.1 2.7 2.5 2.4 Debt Raised/Repaid 32,292 53,912 50,528 73,046 Price/Book Value 1.9 1.8 1.6 1.5 Investment (8,236) 24,623 11,385 12,071 Profitability Ratio (%) Dividend Paid (33,910) (35,749) (33,156) (37,246) RoE 14.0 13.7 12.9 13.0 Misc 9,096 10,891 5,118 (16,312) RoCE 12.8 13.2 11.9 11.8 Net Cash Flow (18,121) 17,257 (391) (29,156) Turnover Ratios Opening Cash Bal. 162,716 144,595 161,853 161,461 Debtors (Days) 52.4 52.7 34.8 51.1 Add: Net Cash (18,121) 17,257 (391) (29,156) Fixed Asset Turnover (x) 0.7 0.8 0.7 0.7 Closing Cash Bal. 144,595 161,852 161,461 132,305 IFIN Research 6

11 May 2012 NTPC Disclaimer: I-Fin Disclaimer: All information/opinion contained/expressed herein above by I-Fin has been based upon information available to the public and the sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Neither I-Fin nor any of its employees shall be in any way responsible for the contents. Opinions expressed are subject to change without notice. This document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. This document is for the information of the addressees only and is not to be taken in substitution for the exercise of judgment by the addressees. All information contained herein above must be construed solely as statements of opinion of I-Fin at a particular point of time based on the information as mentioned above and I-Fin shall not be liable for any losses incurred by users from any use of this publication or its contents. Analyst declaration: I, Sachin Mehta, hereby certify that the views expressed in this report are purely my views taken in an unbiased manner out of information available to the public and believing it to be reliable. No part of my compensation is or was or in future will be linked to specific view/s or recommendation(s) expressed by me in this research report. All the views expressed herewith are my personal views on all the aspects covered in this report. I-Fin Investment Rating: The ratings below have been prescribed on a potential returns basis with a timeline of up to 12 months. At times, the same may fall out of the price range due to market price movements and/or volatility in the short term. The same shall be reviewed from time to time by I-Fin. The addressee(s) decision to buy or sell a security should be based upon his/her personal investment objectives and should be made only after evaluating the stocks expected performance and associated risks. Key ratings: Rating LARGE CAP MID CAP Market Cap >= Rs 100 bn Market Cap < Rs 100 bn BUY (B) > 15% > 25% Hold (H) 5-15% 10-25% SELL (S) < 5% < 8% Not Rated (NR) Not initiated coverage on the stock IFIN: IFCI Financial Services Limited Corporate Office: 'Continental Chambers', III Floor 142, Mahatma Gandhi Road Nungambakkam Chennai - 600 034 Tel: +91-44- 2830 6600 Fax: +91-44-2830 6650 Mumbai Office: 9 th Floor, Earnest House Nariman Point Mumbai - 400 021 Tel: +91-22-4333 5111 E-mail: sales@ifinltd.in Website: www.ifinltd.in IFIN reports are also available on the Bloomberg [IFCI <GO>] IFIN Research 7