NTPC - Efficiency gains aid earnings - Centrum

NTPC's results for Q1FY14 were above our estimates primarily due to higher unit sale price reported at Rs 2.9 (+4% Est.) and efficiency gains reported despite lower PLF and PAF for coal based stations. Earnings through efficiency gains are reflected in the core RoE derived at 5.7 % (+100 bps QoQ) in Q1FY14. Adjusted EBITDA per unit sold is up by 15% YoY at Rs 0.81, however a 24% YoY increase in depreciation and interest cost dragged APAT per unit sold to Rs 0.43 (-4% YoY). Increase in EBITDA per unit sold is attributed to efficiency gains and not towards 11% YoY decline in fuel cost, as it is a cost pass-through and reflected in sales as well. Overall adjusted net sales declined by 4% YoY to Rs 153.1 bn and adjusted EBITDA increased by 6% to Rs 40.1 bn whereas APAT declined by 6% YoY to Rs 23.1 bn.

Adjusted EBITDA margin at 26% (+250bps YoY): On neutralizing the impact of prior period sales, deferred tax and tax recoverable aggregating to Rs 3bn in Q1FY13 vs. 0.6 bn in Q1FY13, adjusted sales and EBITDA stands at Rs 153.1 bn / Rs40.1 bn respectively. Adjusted EBITDA margins increased to 26.2% (+250 bps YoY). Adjusted EBITDA/unit sold at Rs0.81 is up by 15% YoY.

Adjusted PAT is down by 6% YoY but APAT margin is marginally down: On neutralizing the impact of prior period sales and non-core earnings detailed above, APAT is at Rs23.1 bn (-6% YoY). Decline in APAT is attributed to 24% YoY increase in interest and depreciation cost and higher tax rate at 27% vs. 23% in Q1FY13. Adjusted PAT margin stands at 15.1% (-30 bps YoY) and adjusted PAT per unit sold is at Rs 0.43(-4% YoY).

Capacity addition on the rise: We estimate NTPC-standalone to add 1.55/0.91 GW in FY14E/FY15E. In the XII plan, we conservatively estimate capacity addition of 10GW as group and 8.1GW on standalone vs. management guidance of 14GW as group and 11.1GW on standalone. Our capacity addition figures are based on CEA's estimates (22-Apr-13). We have not included 11.3 GW capacity which is under varying stages of development. Hence, commissioning of these capacities will offer margin of safety and earnings upside to our estimates.

Outlook: We expect operational performance to pick-up going forward backed by (1) improved coal supplies; (2) lower incidence of demand backdown by SEBs post implementation of FRP; (3) higher PAF post FSA to lead to higher incentives and (4) increase in core RoE to 23% /25% in FY14E/FY15E vs. 20% in FY13.

Valuations: We value the core business using Discounted Cash Flow to firm with a WACC of 10.5%, cost of equity of 11.9% and a terminal growth rate of 4% up to FY 2025E and accordingly the present value (PV) of Rs. 169 per share is derived. At our PT, NTPC would trade at a P/Bx of 1.5x FY15E vs. historical average one year forward P/Bx of 2.1x and trough P/Bx of 1.3x.

Source : Equity Bulls

Keywords