RESULTS REVIEW Share Data Market Cap Rs. 1,460.7 bn Price Rs. 177.2 BSE Sensex 15,049.86 Reuters NTPC.BO Bloomberg NATP IN Avg. Volume (52 Week) 2.6 mn 52-Week High/Low Rs. 291 / 148.75 Shares Outstanding 8,245.5 mn Valuation Ratios Year to 31 March 2009E 2010E EPS (Rs.) 9.2 10.7 +/- (%) 1.7% 16.2% PER (x) 19.2x 16.6x EV/ Sales (x) 3.8x 3.3x EV/ EBITDA (x) 13.8x 12.0x Shareholding Pattern (%) Promoters 90 FIIs 4 Institutions 3 Public & Others 3 Relative Performance 300 250 200 150 100 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 NATP Rebased BSE Index NTPC LIMITED Lower PLFs affecting growth NTPC s Q1 09 sales grew 6.5% to Rs. 95.4 bn, driven by the increase in the realisation rate. Average realization rate per unit has increased at a higher rate in comparison to the units generated over FY05-08. Considering the Company s historical performance, we believe that the realisation rate will remain a major revenue driver. Among other factors: Plants are suffering a fuel shortage: NTPC s coal-based power plants are operating at a lower PLF due to a rain-induced coal shortage. Moreover, the gas-based power plants are facing a similar problem because of difficulties in procuring gas. We believe the management should be able to solve this problem by importing coal and gas. Capacity expansion plans are on track: NTPC plans to increase its installed capacity to 30 GW by 2010, 50 GW by 2012, and 75 GW by 2017 across all types of power, such as coal, gas, hydro, nuclear, and renewable energy. Capacity addition plans for the XIth plan are progressing as per schedule with 2,490 MW of capacity already commissioned, and the balance in the construction and awarding stages. NTPC also plans to develop 4 merchant power plants, which should provide higher returns. NTPC aims to be a fully-integrated player: The Company plans to diversify its portfolio with presence across the entire energy value chain through backward and forward integration into areas such as coal mining, LNG, manufacturing, trading, and distribution. Hold At the current market price, the stock is trading at a forward P/E of 19.2x and 16.6x for FY09E and FY10E, respectively. Our DCF valuation based target price does not indicate any major upside from the current levels. Hence, we maintain our Hold rating. Key Figures (Standalone) Quarterly data Q1'08 Q4'08 Q1'09 QoQ% YoY% (Figures in Rs. bn, except per share data) Net Sales 89.6 107.4 95.4 (11.2)% 6.5% EBITDA 26.8 28.2 24.2 (14.2)% (9.8)% Net Profit 23.7 13.4 17.3 28.9% (27.1)% Margins(%) EBITDA 30.0% 26.3% 25.4% NPM 26.5% 12.5% 18.1% Per Share Data (Rs.) EPS 2.1 1.6 2.1 29.0% (2.2)% Please see the end of the report for disclaimer and disclosures. -1-
Result Highlights For the first quarter ended FY09, NTPC s net sales grew 6.5% yoy, on PLF of coal-based power plants reduced from 94% in Q1 08 to 89.11% in Q1 09 account of a higher realisation rate. The Company s generation remained almost flat due to lower PLF (89.11% in Q1 09 as against 94% in Q1 08) of its coal-based power plants, caused by a rain-induced coal shortage, and scheduled maintenance activities at some plants. EBITDA dipped 9.8% yoy to Rs. 24.2 bn and margin went down 457 bps to 25.4% primarily due to the increase in fuel costs and higher other expenses. Depreciation increased 12.4% yoy to Rs. 5.5 bn in Q1 09. As a result, operating profit declined 14.7% yoy. Increasing fuel costs hurt profitability Due to the higher interest cost, net profit tumbled 27.1% yoy to Rs. 17.3 bn. However, after adjusting the net profit for one-off items, adjusted net profit grew 5.3% yoy to Rs. 18.6 bn. Reconciliation of PAT Q1'08 Q1'09 % Change Reported PAT 23,699 17,265 (27.1)% Adjustments 1) Previous year sales (5,097) (618) 2) FERV adjusted to interest (3,828) 305 3) Deferred FERV (701) 4) Prior period adjustments (14) (1) 5) Wage Revision/ Pension 1,068 2,110 6) Additional incentive 1,820 220 Total adjustments (6,051) 1,315 Comparable PAT 17,648 18,580 5.3% Please see the end of the report for disclaimer and disclosures. -2-
Key Events Moving to emerge as a fullyintegrated power utility Retail distribution in Kerala NTPC is likely to form a joint venture with Kerala Industrial Infrastructure Development Corporation (KINFRA) through its subsidiary NTPC Electricity Supply Company (NESCL) for taking on the retail distribution of power in a number of industrial parks being developed by the latter. Partnership with overseas firms In an attempt to secure gas supplies for its fuel-starved power plants, NTPC Ltd. may enter into an agreement with three Oman-based companies to set up power projects in Oman. Planning to import coal State Trading Corp of India Ltd floated an import tender for 8.25 mn tonnes of coal for its client NTPC Ltd. Fund-raising plan NTPC plans to raise around Rs. 1,050 bn through external commercial borrowing (ECB) to become a 50,000 MW company by 2012. Key Risks The following factors can pose a threat to our rating: Uncertainty in fuel prices Non-availability of gas linkages Loss or any delay in the approval of contracts Outlook Expansion plans on track NTPC is the market leader in the Power sector with power generation assets of 27GW (excluding JVs), translating into a 19% market share of the overall domestic power industry. With these assets, it contributes 29% of the power sector s total supply. The Company plans an installed capacity of 50 GW by 2012 and 75 GW by 2017. Apart from setting up its own power Please see the end of the report for disclaimer and disclosures. -3-
stations, NTPC is also looking at the joint venture route to increase its generation capacities. Going ahead, we estimate its top line and bottom line to grow at a CAGR of 12.4% and 8.7%, respectively, over FY08-10E. Based on its past performance and the regulated nature of power business, we expect the Company s ROE to hover around the 14% level up to FY10E. Valuation At the current market price, the stock is trading at a forward P/E of 19.2x and 16.6x for FY09E and FY10E, respectively. A hike in fuel prices is expected to reduce the near-term margins. Our DCF valuation-based target price does not provide major upside from the current levels; hence, we maintain our Hold rating. However, faster commissioning of the power plants could boost the Company s earnings considerably. Sensitivity of fair value to WACC and Terminal growth Terminal growth (in %) WACC (in %) 11.0 11.5 12.0 12.5 13.0 4.0 210 190 173 159 146 4.5 223 202 183 167 153 5.0 239 215 194 176 160 5.5 258 230 207 186 169 6.0 281 248 221 199 179 Key Figures (Consolidated) Year to March FY06 FY07 FY08 FY09E FY10E CAGR (%) (Figures in Rs. mn, except per share data) (FY08-10E) Net Sales 275,754 338,757 386,350 428,559 488,430 12.4% EBITDA 81,638 102,529 114,131 116,535 133,969 8.3% Net Profit 62,972 70,472 74,699 75,948 88,222 8.7% Margins(%) EBITDA 29.6% 30.3% 29.5% 27.2% 27.4% NPM 22.8% 20.8% 19.3% 17.7% 18.1% Per Share Data (Rs.) EPS 7.6 8.5 9.1 9.2 10.7 8.7% PER (x) 17.5x 17.5x 19.6x 19.2x 16.6x Please see the end of the report for disclaimer and disclosures. -4-
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