NTPC (NTPC) Capacity addition on track. Result Update WHAT S CHANGED. ICICI Securities Ltd Retail Equity Research.

Transcription

1 Result Update Rating matrix Rating : Buy Target : 161 Target Period : 12 months Potential Upside : 10% Key Financials ( Crore) FY12 FY13 FY14E FY15E Net Sales EBITDA Net Profit Valuation summary FY12 FY13 FY14E FY15E EPS ( ) PE (x) Target PE (x) EV/EBITDA (x) P/BV (x) RoNW (%) RoCE (%) Stock data Market Capitalisation Crore Debt (FY13) Crore Cash (FY13) Crore EV Crore 52 week H/L 191/123 Equity capital 8245 Crore Face value 10 MF Holding (%) 9.9 FII Holding (%) 10.2 Price movement 6,500 6,000 5,500 5,000 4,500 4,000 Nov-12 Analyst s name Feb-13 Price (R.H.S) May-13 Chirag Shah shah.chirag@icicisecurities.com Anuj Upadhyay anuj.upadhyay@icicisecurities.com Jul-13 Nifty (L.H.S) Oct WHAT S CHANGED October 31, 2013 NTPC (NTPC) 146 PRICE TARGET...Unchanged EPS (FY14E)...Unchanged EPS (FY15E)...Unchanged RATING...Unchanged Capacity addition on track NTPC reported Q2FY14 results in line with our expectations. Moderate generation growth and tariff hike led to increased revenues while EBITDA registered strong growth on the back of lower operating expenses. However, adjusted PAT remained flat YoY as incremental capacity led to higher interest and depreciation cost. Both PAF and PLF of coal based plants improved during the quarter. NTPC expects to add about 1.87 GW in FY14. We maintain our BUY rating on the stock with a target price of 161 (implied P/BV of 1.3x FY15 BV). Revenue growth driven by increased offtake and tariff rate Generation increased 3.4% YoY to 54.5 billion units (BUs) while offtake increased 3.7% YoY to 50.7 BUs. This resulted in higher PLFs across coal (75.9% vs. 74.9% YoY) but PLF declined across gas-based plants (31.8% vs. 57.7% YoY) due to fuel supply constraints. Average realisation increased 3.3% YoY 3.18/Kwh. Consequently, revenue increased 7.1% YoY to 16,133 crore (I-direct estimate: 15,755 crore). EBITDA improves but PAT flat due to higher fixed expenses EBITDA increased 24.7% YoY to crore (I-direct estimate: crore) as 11.3% YoY increase in other expenses was offset by 6.5% YoY decline in employee expenses in Q2FY14. Consequently, the EBITDA margin improved 350 bps YoY to 24.7% (I-direct estimate: 24.1%). However, incremental capacity led to higher interest (+104.5% YoY) and depreciation cost (+23.1% YoY). Consequently, adjusted PAT remained flat at crore (I-direct estimate: crore). Capacity addition visibility robust with relatively stable earnings profile YTDFY14, NTPC commissioned 500 MW of capacity (Rihand III) and is expected to add 1375 MW capacity in H2FY14E. We believe NTPC will achieve 40% of its Twelfth Plan target over FY14E-15E (~6000 MW), thereby leading to higher regulated assets and improved reported RoEs (> 15.5%). Furthermore, the mining from Pakri Barwadih will begin from FY14 end. NTPC currently has 10 blocks with an estimated coal reserve of ~5 billion (bn) tonnes. Hence, we maintain our BUY rating on NTPC (inexpensive valuation and risk averse regulatory business model) with a target price of 161 (FY15E P/BV of 1.3x). Exhibit 1: Financial Performance crore Q2FY14 Q2FY14E Q2FY13 Q1FY14 YoY (Chg %) QoQ (Chg %) Net Sales EBITDA (1.8) EBITDA Margin (%) bps (167 bps) Depreciation Interest Adjusted PAT (0.6) 1.0 EPS ( ) (0.6) 1.0 ICICI Securities Ltd Retail Equity Research

2 Exhibit 2: Assumption.. FY12 FY13 FY14E FY15E Capacity (MW) Units generated - Total (Million units) Units generated - Coal (Million units) Units generated - Gas (Million units) PLFs - Coal (%) PLF - Gas (%) Realisation per unit ( /kwhr) Fuel cost per unit ( /kwhr) Key management meet and result highlights The total installed capacity of the NTPC group is 41,684 MW out of which 5364 MW capacity is attributable to JVs and subsidiary companies. The commercial capacity of the NTPC group is at 40,246 MW. It added 500 MW Rihand III in October 2014 NTPC expects to add 1500 MW capacity to its commercial capacity in FY14E taking total commercial capacity to 41,746 MW Gross generation for Q2FY14 stood at 54.5 BUs as against 52.7 BUs in Q2FY13 and 57.0 BUs in Q1FY14, implying moderate YoY and QoQ generation growth Plant availability factor (PAF) for coal based stations improved to 87.5% in Q2FY14 vs. 80.1% YoY driven by better fuel supplies. However, PAF for gas based stations declined to 87.1% in Q2FY14 vs..2% YoY due to ongoing gas supply constraints. Consequently, PLF for coal based stations for Q2FY14 improved to 75.9% vs. 74.9% YoY whereas for gas based plants it declined sharply to 31.8% vs. 57.7% YoY during the quarter Coal supply to Kahalgaon and Farakka has started via waterways while logistic concerns on coal supply for the Mauda plant have been addressed by the construction of a railway line. This would lead to improved PAF at these plants and result in higher incentives The regulated asset base of the company stands at crore. NTPC aims to achieve crore of regulated equity by FY14 NTPC received 37.3 MMT of coal in Q2FY14 vs MMT in Q2FY13. Imported coal stood at 3.5 MMT vs. 1.6 MMT in Q2FY13 The company received 101% of ACQ coal for Q2FY14 (99.7% in Q1FY14) While capacity addition was muted in H1FY14, Rihand III 500 MW plant was commissioned in October 2013 Exhibit 3: Trend in quarterly capacity addition Particluars (In MW) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Group Capacity Capacity Added - NTPC Capacity Added - JV's ICICI Securities Ltd Retail Equity Research Page 2

3 Exhibit 4: Trend in generation (million units) 62,000 60,000 58,000 Generation of NTPC in Q2FY14 was up 3.5% YoY to 54.5 BUs due to higher YoY capacity 56,000 54,000 52,000 50,000 48,000 Q4FY10 Q1FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 MUs Q4FY13 Q1FY14 Q2FY14 Source: CEA, Company, ICICIdirect.com Research Exhibit 5: Trend in PLFs Coal PLFs for Q2FY14 stood at 75.9% while that for gas based plants stood at 31.8% (%) Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Coal - PLF (%) Gas - PLF (%) Exhibit 6: Trend in PAFs for coal and gas based stations PAF for coal based stations stood at 87.5% and that of gas based stations stood at 87.1% for Q2FY14 (%) Q4FY10 Q1FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Coal - PAF (%) Gas - PAF (%) ICICI Securities Ltd Retail Equity Research Page 3

4 The company had added 4170 MW in FY13 and expects to add 1875 MW in FY14E. Of this, 500 MW Rihand III has been added in YTDFY14. For FY15E, we expect NTPC to add 4093 MW capacity. In terms of commercial capacity, which would add return to its equity, NTPC expects to add 1500 MW in FY14E and ~1410 MW in FY15. Exhibit 7: Summary of projects expected to be commissioned by FY17 Capacities to be commissioned in FY14 Capacity Rihand III* 500 Kanti Subsidiary 195 Barh Vallur JV 500 Solar 20 Total 1875 Capacities to be commissioned in FY15 Capacity Bongaigaon 750 Barh II 660 Barh I 660 Tapovan Vishnugarh Hydel 520 Nabinagar JV 500 Kanti Subsidairy 195 Koldam 800 Singrauli Hydel 8 Total 4093 Capacities to be commissioned in FY16 Capacity Barh I 1320 Vindhyachal JV 500 Kudgi 800 Nabinagar JV 500 Total 3120 Capacities to be commissioned in FY17 Capacity Kudgi 800 * Already commissioned The company received 101% of ACQ coal for Q2FY14 (99.7% in Q1FY14). On an absolute basis, NTPC received 37.3 MMT of coal in Q2FY14, which included 3.5 MMT of imported coal during Q2FY14. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 8: Fuel requirement in Twelfth Five Year Plan (%) FY14E FY15E FY16E FY17E ACQ+LOA E-Auction +MoU Captive Mines Domestic Defifcit(Imported) Exhibit 9: Total MW projects under construction Projects Capacity (MW) Coal based Barh-I 1980 Bongaigaon 750 Barh II 1320 Solapur 1320 Mouda-II 1320 Vindhyachal-V 500 Kudgi 2400 Lara 1600 Gadarwara 1600 Total - Coal based 127 Hydro Koldam 800 Tapovan Vishnugadh 520 Lata Tapovan +Singrauli 179 Total - Hydro 1499 Renewable Projects Unchacha Solar 10 Ramagundam 10 Talcher 10 Faridabad 5 Rajgarh Solar 50 Total - Project under JVs/ Subsidiaries 85 Projects under JVs/Subsidiaries Vallur-JV with TANGEDCO 500 Nabinagar-JV with Railways 1000 Nabinagar (JV with BSEB) 1980 Muzaffarpur expansion 3 (MTPS)-JV with BSEB Meja (JV with UPRVUNL) 1320 Total - Project under JVs/ Subsidiaries 51 Total ICICI Securities Ltd Retail Equity Research Page 5

6 Exhibit 10: Year wise capacity addition target for NTPC in Twelfth Plan Exhibit 11: Proportion of capacity addition in Twelfth Five Year Plan (MW) FY13 FY14 FY15 FY16 FY17 Total 12th Plan FY13 FY14 FY15 FY16 FY17 Valuation and outlook In the Twelfth Plan YTD, NTPC has added 4700 MW of capacity (33.4% of target) and will be adding another 1375 MW capacity in FY14E. We believe NTPC will achieve 40% of its Twelfth Plan target over FY14E- 15E (~6000 MW), thereby leading to higher regulated assets and improved reported RoEs (> 13%). Furthermore, improvement in PAF at Farakka, Kahalgaon and Mauda will generate higher incentives, going ahead. NTPC currently has 10 coal blocks with an estimated coal reserve of ~5 billion tonnes and mining from Pakri Barwadih will begin from FY14 end. Hence, we maintain our BUY rating on NTPC (inexpensive valuation and, risk averse regulatory business model) with a target price of 161 (FY15E P/BV of 1.3x). What can possibly drive rating for stock, going ahead? In the Twelfth Plan, the capacity addition target is more front ended as the company is expected to achieve almost 72% of the overall Twelfth Plan target over FY13-15E. NTPC has already achieved 30% of the overall Twelfth Plan target Timely development of coal mines will make NTPC more backward integrated. Timely execution in the development of mines at a faster pace would ensure better PAFs, going ahead, and will reduce dependency on external agencies for fuel supplies. Further, the company is planning to bid in the auction of coal mines. NTPC has expended 955 crore in Pakri Barwadih, which is expected to commence production in FY14E. NTPC is targeting coal production of 37 MMT by FY17, which would be about ~17% of the total coal requirement. ICICI Securities Ltd Retail Equity Research Page 6

7 Exhibit 12: Trend in regulated equity ( crore) FY10 FY11 FY12 Q1FY13 Q2FY13 Q3FY13 FY13E FY14E ICICI Securities Ltd Retail Equity Research Page 7

8 Financial summary Profit and loss statement ( Crore) (Year-end March) FY12 FY13 FY14E FY15E Total operating Income 64,830 65,674 78,839 82,165 Growth (%) Raw Material Expenses 41,635 41,018 51,233 52,871 Employee Expenses 3,0 3,360 3,655 3,757 Other expenses 3,589 4,182 4,679 4,996 Total Operating Expenditure 48,315 48,559 59,568 61,623 EBITDA 16,516 17,115 19,271 20,542 Growth (%) Depreciation 2,792 3,397 4,367 5,337 Interest 1,712 1,924 2,800 3,100 Other Income 0 3,102 3,500 4,000 PBT 12,012 14,895 15,604 16,105 Others (314) (1,684) 0 0 Total Tax 3,102 3,930 3,589 3,704 PAT 9,223 12,649 12,015 12,401 Adjusted PAT 9,223 10,965 12,015 12,401 Growth (%) EPS ( ) Cash flow statement ( Crore) (Year-end March) FY12 FY13 FY14E FY15E Profit Before Tax 12,326 14,895 15,604 16,105 Add: Depreciation 2,792 3,397 4,367 5,337 (Inc)/dec in Current Assets (2,725) (1,530) (6,545) (2,337) Inc/(dec) in CL and Provisions 376 4,005 3, Others 1,098 (6) 1,211 1,396 CF from operating activities 13,867 20,761 18,226 21,170 (Inc)/dec in Investments 2, (Inc)/dec in Fixed Assets (13,136) (16,300) (10,000) (15,000) Others CF from investing activities (11,037) (15,854) (10,000) (14,998) Issue/(Buy back) of Equity Inc/(dec) in loan funds 5,213 7,345 7,000 10,500 Dividend paid & dividend tax (4,115) (5,497) (5,015) (5,176) Inc/(dec) in Sec. premium Others (3,968) (1,924) (2,800) (3,100) CF from financing activities (2,869) (76) (815) 2,226 Net Cash flow (39) 4,831 7,410 8,398 Opening Cash 16,185 16,146 20,977 28,388 Closing Cash 16,146 20,977 28,388 36,786 Balance sheet ( Crore) (Year-end March) FY12 FY13 FY14E FY15E Liabilities Equity Capital 8,245 8,245 8,245 8,245 Reserve and Surplus 65,046 72,197 79,197 86,422 Total Shareholders funds 73,291 80,443 87,443 94,667 Total Debt 45,8 53,254 60,254 70,754 AAD 1,430 1,244 1,306 1,372 Minority Interest / Others ,009 Total Liabilities 121, , , ,321 Assets Gross Block 81, , , ,421 Less: Acc Depreciation 36,572 39,969 44,335 49,672 Net Block 45,258 60,077 65,085 79,748 Capital WIP 41,828 38,789 34,941 36,108 Total Fixed Assets 87,086 98, , ,856 Investments 11,206 10,760 10,760 10,760 Inventory 3,703 4,057 4,565 4,745 Debtors 5,833 5,365 7,292 7,673 Loans and Advances 6,638 11,379 9,001 9,791 Other Current Assets 10,226 12,641 13,559 14,545 Cash 16,146 20,977 28,388 36,786 Total Current Assets 42,545 54,420 62,804 73,539 Creditors 4,468 5,159 5,826 6,027 Other Liabilities 11,284 12,413 13,595 14,064 Provisions 3,819 7,744 7,744 7,744 Total Current Liabilities 19,571 25,316 27,165 27,836 Net Current Assets 22,974 29,104 35,638 45,703 Others Assets Application of Funds 121, , , ,321 Key ratios (Year-end March) FY12 FY13 FY14E FY15E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 8

9 Company Description The country s largest power company, NTPC, was set up in 1975 to accelerate power development in India. NTPC is emerging as a diversified power major with a presence in the entire value chain of the power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilisation and coal mining. The total installed commercial capacity of NTPC group is MW (including JVs), located across the country. In addition, under JVs, seven stations are coal based while another station uses naphtha/lng as fuel. The company has set a target to have an installed power generating capacity of 1,28,000 MW by Exhibit 13: Recommendation History Nov-12 Dec-12 Feb-13 Mar-13 May-13 Jun-13 Jul-13 Sep-13 Oct-13 Price Target Price Source: ICICIdirect.com Research Exhibit 14: Recent Releases Date Event CMP Target Price Rating 5-Jun-12 Q1FY13 Preview Hold 2-Aug-12 Q1FY13 Review Hold 8-Oct-12 Q2 FY13 Peview Hold 29-Oct-12 Q2FY13 Review Hold 8-Jan-13 Q3FY13 Preview Hold 22-Jan-13 Q3FY13 Review Hold 6-Apr-13 Q4FY13 Preview Buy 13-May-13 Q3FY13 Review Buy 5-Jul-13 Q1FY14 Preview Buy 2-Aug-13 Q1FY14 Review Buy 7-Oct-13 Q2FY14 Preview Buy Source:, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Power) M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company CMP Target Rating ( Cr) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E JP Power(JAIHYD) UR 5, NHPC (NHPC)* Buy 2, NTPC (NTPC) Buy 121, PTC India (POWTRA) Hold 1, CESC (CESC) Hold 4, Tata Power (TATPOW) Hold 19, NA Source: ICICIdirect.com Research UR Under Review ICICI Securities Ltd Retail Equity Research Page 10

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ANALYST CERTIFICATION We /I,, Chirag Shah PGDBM and Anuj Upadhayay MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees ( ICICI Securities and affiliates ) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Chirag Shah PGDBM and Anuj Upadhayay MBA research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Chirag Shah PGDBM and Anuj Upadhayay MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 11