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Maintain BUY on NTPC - Asset monetisation on the cards - HDFC Securities

Posted On: 2021-08-03 17:21:59 (Time Zone: UTC)

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Generation/sales increased 19.2%/19.3% YoY to 71.7bn/66.6bn unit in Q1FY22 on the back of demand recovery. Coal PAF, however, declined in Q1FY22 to 94% vs 96% YoY, but coal PLF was up at 70% in Q1FY22 vs 58.2% YoY. Under recovery in Q1FY22 came in at INR1.9bn. After adjusting for previous periods and one-off items, adjusted PAT came in at INR31.6bn above our estimate. Debtors (>45 days) increased to INR90bn vs INR65bn QoQ during the second corona wave. NTPC plans to add 15GW of RES capacity by FY24 and another 45GW by FY32. We expect the company's standalone PAT to grow at 9% CAGR over FY21-23E, led by improvement in PLF, PAF, and regulated equity. The RoE shall expand from 13.2% in FY21 to 13.7% in FY23 and generate an FCF of INR175bn over FY22-23E. Management plans to monetise its trading arm and renewable business, going ahead, to enhance the value proposition for stakeholders. We maintain a BUY rating and FY23 P/BV (consolidated) TP of INR 143/share as the stock is currently trading at an attractive FY23 consolidated P/BV of 0.7x and a PE of 6.0x.

Earnings above estimate: Energy sales increased 19.3% YoY to 66.6bn unit in Q1FY22 due to strong power demand. Coal PAF, however, declined 208bps YoY to 93.7% due to an annual overhaul, while coal PLF rose to 69.7% vs 58.2% YoY. Accordingly, Q1FY22 under recovery came in at INR1.9bn. Gas PAF/PLF came in at 97.0%/8.1% compared to 93.3%/25.4% YoY. After adjusting for previous period and one-off items, PAT came in at INR31.6bn in Q1FY22 (+1% YoY), above our estimate of INR24.3bn.

Targets 15GW of RES capacity by FY24: For FY22E/FY23E, we expect NTPC to commercialise 5.5GW and 6.7GW respectively. These projects will increase the standlone regulated equity by 21% to INR781bn in FY23E vs. INR648bn in FY21. On the renewable front, management targets to add 15GW of capacity by FY24 and another 45GW by FY32. NTPC has 1.4GW of installed RES capacity as on date, while another 3GW/4.5GWof RES capacity is under construction/at the tendering stage.

Maintain BUY: NTPC plans to add 60GW of RES capacity by FY32, an effort to scale up its score in ESG mterics. Along with strong Capex on thermal front, this should drive its regulated equity and earnings growth, going ahead (9% CAGR over FY21-23E), which should boost its RoE. The management is also confident of selling surplus available capacity (from the surrender of old PPA by discoms) in the open market and earn better RoEs. Also, its plan to monetise the trading arm and renewable business, going ahead, would enhance the value proposition for stakeholders. Accordingly, we maintain a BUY and FY23 P/BV (consolidated) TP of INR 143/share. The stock is currently trading at an attractive FY23 consolidated P/BV of 0.7x and a PE of 6.0x.

Shares of NTPC Limited was last trading in BSE at Rs. 117.6 as compared to the previous close of Rs. 117.8. The total number of shares traded during the day was 391629 in over 3505 trades.

The stock hit an intraday high of Rs. 118.15 and intraday low of 116.6. The net turnover during the day was Rs. 45991549.

Source: Equity Bulls

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