NTPC - Excellent result in a challenging environment; sustainable growth ahead - ICICI Securities

NTPC's standalone adjusted profit in Q1FY21 was Rs27.1bn (down 7.8% YoY), but adjusting one-time rebate on fixed charges to discoms of Rs8bn (pre-tax), adjusted profit increased 14.8% YoY to Rs33.7bn. Being the first full quarter post the acquisition of THDC & NEEPCO, NTPC's adjusted consolidated profit increased 21.3% to Rs38.5bn. The company's core RoE remained strong at 19.5%, but fixed cost under- recovery was at Rs2.3bn (Rs1.2bn in Q1FY20). On Q1FY21 consolidated profit basis, annualised EPS comes to Rs15.4, Q1FY21-end RoE at 12.5% (pre-exception) and book value/share at Rs124. Thus, NTPC is on course to achieve the FY21E target EPS of Rs12.3/Rs14.5 for standalone/consolidated entity (ex-rebate offered). Core earnings remain strong, which will be further strengthened by the robust commissioning pipeline and green initiatives. Maintain BUY with an unchanged target price of Rs165.

- Operational profitability remains high: Standalone revenue for the quarter was at Rs234bn, down 3.1% YoY, while EBITDA was at Rs77.5bn, up 20%. Reported standalone PAT for Q1FY21 was Rs24.7bn, down 5.1% YoY, while adjusted standalone PAT was Rs27.1bn, down 7.8% YoY. However, considering the rebate provided to discoms on fixed charges as a one-time expense, adjusted standalone PAT was Rs33.7bn, up 14.8% YoY. Adjusted consolidated PAT including THDC & NEEPCO was up 21.3% YoY at Rs38.5bn. Earnings were impacted by: 1) Rs8bn (of Rs13.6bn announced) of rebate to discoms (provided only to states which met the stipulated conditions; balance Rs5.5bn (pre-tax) will be provided as and when the states meet the conditions), 2) Rs2.5bn donation to PM CARES fund, 3) Coal GCV-related adjustments of Rs4.6bn and 4) previous year sales of Rs4.3bn (post tax). Additionally, there was Rs2.1bn interest charge in Q1FY21 related to THDC & NEEPCO acquisitions (whereas dividend payment is generally in Q4).

- Operationally steady quarter despite disruptions: Gross generation in Q1FY21 for standalone was 60.2BU, down 12.1% YoY due to grid restrictions. Coal PLF was lower 1,569bps YoY at 58.2%, while lower LNG prices led to higher gas PLF at 25.4% (up ~478bps YoY). Hydro PLF was down ~263bps YoY at 53.8%. Coal availability was a non-issue and coal PAF was 95.8% (up 470bps YoY). Commercialisation of 660MW Khargone and 150MW Kameng HEP (NEEPCO) took the group's commercial capacity to 61,960MW.

- Decoding the quarter for the year ahead: On the basis of Rs38.5bn consolidated profit in Q1FY21, annualised EPS comes to Rs15.4, Q1FY21-end RoE at 12.5% (pre-exception) and BVPS at Rs124. Thus, NTPC is on course to achieve the FY21E target EPS of Rs12.3/Rs14.5 for standalone/consolidated. Increase in regulated equity by Rs97bn in TTM has resulted in strong core earnings with standalone core RoE at 19.5% (18% in FY20). This is expected to strengthen further on the back of a robust commissioning pipeline for both thermal and renewable, supported by green initiatives - FGD, low-NOx systems etc. Although receivables have increased to over Rs200bn, 55% of overdue has been liquidated and we expect significant improvement in the next few months.

- Maintain BUY: We maintain BUY with target price remaining unchanged at Rs165/share. The stock is currently trading at FY22E standalone P/BV of 0.7x (P/E of 5.7x) and FY22E consolidated P/E of 5x with an expected earnings CAGR of 17.2% over FY20-FY22E.

Shares of NTPC LTD. was last trading in BSE at Rs.95.4 as compared to the previous close of Rs. 88.4. The total number of shares traded during the day was 8105217 in over 30082 trades.

The stock hit an intraday high of Rs. 96.35 and intraday low of 89.2. The net turnover during the day was Rs. 759852798.

Source : Equity Bulls

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