Need to pull up the socks May 11, 2012 Rupa Shah rupashah@plindia.com +91-22-66322244 Rating Accumulate Price Rs148 Target Price Rs162 Implied Upside 9.5% Sensex 16,293 Nifty 4,929 (Prices as on May 11, 2012) Trading data Market Cap. (Rs bn) 1,221.6 Shares o/s (m) 8,245.5 3M Avg. Daily value (Rs m) 354.7 Major shareholders Promoters 84.50% Foreign 4.02% Domestic Inst. 7.65% Public & Other 3.83% Stock Performance (%) 1M 6M 12M Absolute (10.4) (14.7) (16.2) Relative (5.1) (9.5) (3.8) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2013 10.8 12.2 10.8 2014 12.4 13.6 8.8 Price Performance (RIC: NTPC.BO, BB: NTPC IN) (Rs) 250 200 150 100 50 0 May-11 Jul-11 Source: Bloomberg Sep-11 Nov-11 Jan-12 Mar-12 May-12 Revenue and Earnings analysis: NTPC managed to gear up the PLFs in Q4 which has led to a 4.5% QoQ and YoY increase in generation. However, for FY12, lower coal supplies and demand led to a 322bps dip in PLFs. Earnings suffered by 7% was on APAT basis on account of lower generation, coupled with lower PAF (leading to lower incentives) and higher O&M costs. Revenue for Q4FY12 increased by 4.8% YoY and for FY12, stood at 11.4% (out of which 10% hike was attributable to fuel price hike). FY12 Generation stood at 222bn units, which was flat YoY and just managed to reach the MOU target. Updates: NTPC added only 1660MWs and missed the target of 4980MWs in FY12E. Units commission in FY12 stood at 2800MWs. In FY12, NTPC s PAF stood at 88%, declining from 91.5% YoY. For FY12, Gas PLF stood at 65% as against 71.7% in FY11. The average receivable days for the company have increased to 73 days from 69 days in FY11. Overall the company has close to 18GWs under construction. In FY13E-14E, NTPC targets to commission 4.2GWs, of which, 2.6GWs would be a spillover from FY12. NTPC also targets 14GWs capacity addition in the 12 TH plan as against 6.2GWs in the 11 th Plan. Out of this, 3GWs would be from JVs. About 164mtpa and 180mtpa of coal would be required by NTPC in FY13E and FY14E, respectively. Capex mining till FY12 has been Rs7.5bn. Valuation and Recommendation: With small capacity addition in FY12, coupled with earnings de-growth, going ahead, NTPC would have to add 4GWs in worst case scenario in FY13E, as 2.5GWs would be a spillover of FY12. We have downgraded our FY13E PAT estimates by Rs4bn on back of lower incentives and sales growth. The stock is trading at a P/BV of 1.5x FY13E and 1.4x FY14E. Though the risk-reward ratio has turned unfavourable towards NTPC and the power sector in general, the stock offers a defensive play within the sector, and thus, we maintain Accumulate on the stock. Key financials (Y/e March) 2011 2012 2013E 2014E Revenues (Rs m) 549,387 611,963 652,082 736,669 Growth (%) 18.6 11.4 6.6 13.0 EBITDA (Rs m) 125,770 131,938 133,842 179,590 PAT (Rs m) 88,332 82,608 89,391 102,112 EPS (Rs) 10.7 10.0 10.8 12.4 Growth (%) 4.5 (6.5) 8.2 14.2 Net DPS (Rs) 3.8 3.9 4.2 4.2 Profitability & Valuation 2011 2012 2013E 2014E EBITDA margin (%) 22.9 21.6 20.5 24.4 RoE (%) 13.6 11.7 11.7 12.4 RoCE (%) 9.6 8.0 7.8 8.1 EV / sales (x) 2.7 2.5 2.6 2.4 EV / EBITDA (x) 11.9 11.6 12.7 9.9 PE (x) 13.8 14.8 13.7 12.0 P / BV (x) 1.8 1.7 1.5 1.4 Net dividend yield (%) 2.6 2.6 2.9 2.9 Source: Company Data; PL Research Q4FY12 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q4FY12 Result Overview (Rs m) Y/e March Q4FY12 Q4FY11 YoY gr. (%) Q3FY12 FY12 FY11 YoY gr. (%) Net Sales 162,639 155,189 4.8 153,323 611,462 548,740 11.4 Expenditure Fuel Cost 104,430 97,256 7.4 107,933 416,355 353,738 17.7 % of Net Sales 64.2 62.7 70.4 68.1 64.5 Other Expenses 8,119 12,665 (35.9) 9,162 32,766 44,000 (25.5) % of Net Sales 5.0 8.2 6.0 5.4 8.0 Personnel Cost 8,963 7,082 26.6 7,188 30,905 27,897 10.8 % of Net Sales 5.5 4.6 4.7 5.1 5.1 Total Expenditure 121,512 117,002 3.9 124,769 480,025 425,635 12.8 EBITDA 41,127 38,187 7.7 28,554 131,437 123,105 6.8 Margin (%) 25.3 24.6 18.6 21.5 22.4 Depreciation 7,363 6,981 5.5 7,560 27,917 24,857 12.3 EBIT 33,765 31,206 8.2 20,993 103,520 98,248 5.4 Interest 4,870 5,299 (8.1) 4,496 17,116 21,491 (20.4) Other Income 7,679 6,642 15.6 9,121 36,858 25,333 45.5 AAD - 19 10 18,405 PBT 36,574 32,568 12.3 25,628 123,262 120,496 2.3 Tax 10,640 4,750 124.0 4,324 31,024 29,470 5.3 Tax Rate (%) 29.1 14.6 16.9 25.2 24.5 Reported Pat 25,934 27,819 (6.8) 21,304 92,237 91,026 1.3 Adjusted PAT 21,880 23,092 (5.2) 19,561 82,107 88,332 (7.0) Adjusted PAT Reported by Company 21,880 23,092 (5.2) 21,728 83,289 83,279 0.0 No of Units generated bn 60.2 57.8 4.1 56.2 222 221 0.7 ESO bn 56 54 3.5 53 207 207 0.0 PLF % 91.1 83.6 83.6 85.1 88.3 322 Source: Company Data, PL Research Exhibit 2: Generation Overview 29,000 28,000 27,000 26,000 25,000 24,000 23,000 Operating Capacity (MWs) Generation (Mus) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 62 60 58 56 54 52 50 48 46 Source: Company Data, PL Research May 11, 2012 2
Key Highlights of the Conference Call NTPC is planning to commercialize/commission around 4GWs comprising of Rihand, Sipat, Mouda and Simadhri and Vindhyachal one units each. The company plans to import 16mtpc of coal in FY13E. The company has lost 16bn units and 7.8bn units in FY12 mainly on account of grid restrictions and lower coal supplies, respectively. The group capacity of NTPC in FY12 stands at 37.5GWs. For FY12, 13mmscmd gas was received as against 13.7mmscmd in FY11. Outstanding bonds stand at Rs65bn in FY12. Capex incurred in FY12 is Rs88bn. May 11, 2012 3
Income Statement (Rs m) Net Revenue 549,387 611,963 652,082 736,669 Raw Material Expenses Gross Profit 549,387 611,963 652,082 736,669 Employee Cost Other Expenses 423,617 480,025 518,241 557,079 EBITDA 125,770 131,938 133,842 179,590 Depr. & Amortization 24,857 27,917 32,000 44,000 Net Interest 21,491 17,116 22,241 29,983 Other Income 8,143 36,858 34,951 28,691 Profit before Tax 87,565 123,763 114,552 134,299 Total Tax 29,470 31,024 25,213 32,246 Profit after Tax 58,095 92,738 89,339 102,053 Ex-Od items / Min. Int. 2,694 10,131 2 1 Adj. PAT 88,332 82,608 89,391 102,112 Avg. Shares O/S (m) 8,245.5 8,245.5 8,245.5 8,245.5 EPS (Rs.) 10.7 10.0 10.8 12.4 Cash Flow Abstract (Rs m) C/F from Operations 110,478 130,617 185,137 129,957 C/F from Investing (34,428) (241,665) (169,101) (147,242) C/F from Financing (58,792) 110,657 (11,078) 8,982 Inc. / Dec. in Cash 17,258 (391) 4,957 (8,303) Opening Cash 144,595 161,853 161,461 166,418 Closing Cash 161,853 161,461 166,418 158,115 FCFF 56,361 (117,263) (147,089) 23,075 FCFE 110,273 (72,772) 20,548 96,305 Key Financial Metrics Growth Revenue (%) 18.6 11.4 6.6 13.0 EBITDA (%) 1.3 4.9 1.4 34.2 PAT (%) 4.5 (6.5) 8.2 14.2 EPS (%) 4.5 (6.5) 8.2 14.2 Profitability EBITDA Margin (%) 22.9 21.6 20.5 24.4 PAT Margin (%) 16.1 13.5 13.7 13.9 RoCE (%) 9.6 8.0 7.8 8.1 RoE (%) 13.6 11.7 11.7 12.4 Balance Sheet Net Debt : Equity 0.4 0.4 0.6 0.7 Net Wrkng Cap. (days) Valuation PER (x) 13.8 14.8 13.7 12.0 P / B (x) 1.8 1.7 1.5 1.4 EV / EBITDA (x) 11.9 11.6 12.7 9.9 EV / Sales (x) 2.7 2.5 2.6 2.4 Earnings Quality Eff. Tax Rate 24.5 25.1 22.0 24.0 Other Inc / PBT 23.7 29.8 30.5 21.4 Eff. Depr. Rate (%) 3.4 2.8 2.8 3.4 FCFE / PAT 124.8 (88.1) 23.0 94.3 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 678,923 732,912 791,686 859,394 Total Debt 431,882 476,373 644,010 717,240 Other Liabilities 10,948 20,670 (1,440) (2,371) Total Liabilities 1,121,754 1,229,955 1,434,256 1,574,263 Net Fixed Assets 725,623 870,862 948,708 1,103,220 Goodwill Investments 123,448 112,064 123,123 132,124 Net Current Assets 272,682 247,029 362,423 338,916 Cash & Equivalents 161,853 161,461 166,418 158,115 Other Current Assets 241,558 263,991 344,037 347,531 Current Liabilities 130,729 178,423 148,032 166,730 Other Assets 1 2 3 Total Assets 1,121,753 1,229,955 1,434,256 1,574,263 Quarterly Financials (Rs m) Y/e March Q1FY12 Q2FY12 Q3FY12 Q4FY12 Net Revenue 141,715 153,775 153,323 162,639 EBITDA 28,663 32,387 28,554 41,127 % of revenue 20.2 21.1 18.6 25.3 Depr. & Amortization 6,411 6,582 7,560 7,363 Net Interest 3,744 3,312 4,496 4,870 Other Income 9,964 10,093 9,121 7,679 Profit before Tax 28,472 32,587 25,608 36,574 Total Tax 7,714 8,347 4,324 10,640 Profit after Tax 19,622 24,240 21,284 25,934 Adj. PAT 19,622 16,640 19,541 21,880 Key Operating Metrics Operating capacity (MWs) 30,830 27,548 31,708 35,388 Avg. Coal PLF (%) 90.5 88.0 90.0 89.0 Generation (Rs m) 220 194 229 252 Other Income/PAT (%) 27.0 40.0 39.1 28.1 Capex (Rs bn) 59 253 158 138 Capacity Commercialised (MWs) 1,493 1,160 4,160 3,680 Interest Rate (%) 5.0 3.6 3.5 4.2 Source: Company Data, PL Research. May 11, 2012 4
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage % of Total Coverage 60% 50% 40% 30% 20% 10% 0% 53.3% 22.0% 23.3% 1.3% BUY Accumulate Reduce Sell PL s Recommendation Nomenclature BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. May 11, 2012 5