NTPC - Green capex, buyback, dividend, valuation - can't get better - ICICI Securities

NTPC has reported strong operational numbers in Q2FY21 on the back of power demand recovery. While reported standalone PAT was Rs35bn, up 7.4% YoY, adjusted PAT was Rs39.4bn, improving 22.9% YoY (adjusting for one-offs and onetime rebate on fixed charges). With H1FY21 consolidated adjusted profit at Rs83.6bn, up 16% YoY, NTPC is expected to register 15% earnings CAGR over FY21-23. The company's green commitments remain firm and we expect it to be visible in its ESG scores going forward. NTPC has announced it will buy back 197.9mn shares (2% of total share capital) at Rs115/sh (total consideration Rs22.76bn), but still expects to pay 5% of net worth as dividend over and above the buyback in FY21 (implies Rs6/sh). Maintain BUY with an unchanged target price of Rs165/sh.

- Operational profitability remains high: For standalone, reported PAT in Q2FY21 was Rs35bn (up 7.4% YoY) while adjusted PAT was Rs39.4bn (up 22.9% YoY). NTPC provided for the balance Rs5.6bn rebate during Q2FY21 (Rs8bn provided in Q1FY21). Adjusting for the same, PAT in H1FY21 was Rs73bn, up 19% YoY. Revenue for the quarter was Rs246.8bn, up 8.4% YoY, while EBITDA was Rs71.8bn, up 13.2%. Regulated equity was Rs635bn vs Rs618bn at FY20-end. On consolidated basis, reported PAT in Q2FY21 was Rs34.9bn, down 7.7% YoY, but adj. PAT in H1FY21 (adjusting one-offs and Rs15.07bn FC rebate) was Rs83bn, up 16.2% YoY.

- Buyback announced: NTPC has announced a buyback programme through which it will buy back 197.9mn shares (2% of total share capital) at Rs115/sh (total consideration Rs22.76bn). It has fixed 13th Nov as the record date. Special approval has been taken so that GoI's stake does not go below 51%. NTPC expects to continue paying 5% of net worth as dividend in FY21 (implies Rs6/sh), over and above the buyback.

- Decoding the quarter for the year ahead: With adjusted EPS for standalone / consolidated entity at Rs7.4/Rs8 in H1FY21, we believe, NTPC is on course to achieve FY21E target EPS of Rs12.3/Rs14. Rs102.6bn increase in regulated equity in TTM has resulted in strong core earnings, which a robust commissioning pipeline, supported by green initiatives will strengthen further. Over dues (>45days) now stand at Rs191.6bn but are expected to reduce to Rs160bn by FY21-end. Under-recoveries were Rs4.97bn at Q2FY21-end. The company expects FY21 under recovery at ~Rs2.5bn.

- Evolution into a cleaner and greener company should be rewarded: We believe NTPC is taking huge strides to transform itself into a company with cleaner coal assets, higher share of renewables and greater focus on all ESG parameters. Transition to cleaner technologies requires huge investments, which, without external support, only cashflows from company's current basket of assets is able to fund. This is apart from the fact that thermal will continue to retain its status as the primary fuel for power generation in the next two decades in India. Thus, being essential for NTPC's as well as India's transition to cleaner generation technologies, rather than completely discrediting it, investors should view current thermal technologies as vital for funding future green technologies and give it a larger scope in our endeavour to achieve a greener future. Intent of the company is very clear, which is to move towards "Clean, Green & Sustainable". We believe if all forms of hydrocarbons (solid, liquid or gas) are shunned immediately, most of the companies become un-investible.

- Maintain BUY: We maintain BUY with an unchanged target price of Rs165/share. The stock is currently trading at FY22E standalone P/BV of 0.7x (P/E of 5.4x) and FY22E consolidated P/E of 4.8x.

Shares of NTPC LTD. was last trading in BSE at Rs.89.25 as compared to the previous close of Rs. 87.6. The total number of shares traded during the day was 1259000 in over 5163 trades.

The stock hit an intraday high of Rs. 89.5 and intraday low of 87.95. The net turnover during the day was Rs. 111892628.

Source : Equity Bulls

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