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

NTPC has closed FY21 with excellent operational figures despite the challenges faced during H1FY21. NTPC group has added 3.4GW (net) commercial capacity during the year to reach 64.5GW, while standalone commercial capacity reached 51.7GW. Non-fossil fuel capacity addition of 904MW (RE + hydro) helped its pie to increase by 100bps YoY to 7.8% of total installed capacity, which is to increase to ~40% in the next decade. Helped by disbursals by PFC and REC through the Aatmanirbhar scheme for discoms, NTPC's FY21-end receivables are estimated to have declined to 45-48 days (Rs120bn-Rs140bn), lower than at FY20-end. NTPC's transition towards an integrated energy company with focus on clean and green energy is taking shape with projects in several business areas, both large-scale and pilots. Maintain BUY with an unchanged target price of Rs165.

- Capacity addition: FY21 was another successful year in terms of capacity addition. NTPC group's commercial / installed capacity increased by 3,825MW / 3,500MW, taking total capacity to 64,490MW / 65,150MW (including retirement of the 460MW Odisha-based Talcher TPS). NTPC's standalone commercial and installed capacity (net) increased by 1,370MW to reach 51,725MW at FY21-end. In Q4FY21, NTPC group commercialised a total of 1,975MW: 1) 300MW Kameng HEP (units-3&4); 2) 140MW Bilhaur-I (UP) solar PV project (total project cost: Rs6.4bn); 3) 660MW unit-2 of Meja TPP; 4) 5MW (last part) of 20MW Auraiya solar PV project (total project cost: Rs921mn); 5) unit-2 of 800MW Gadarwara STPP; and 6) 70MW (first part) of 85MW Bilhaur-II (UP) solar PV project (balance likely to be completed in Apr'21; total project cost: Rs4.4bn). During FY21, NTPC also declared CoD of Dulanga coal mine, which has a peak rated capacity of 7mtpa. NTPC group has >18GW of capacity under construction, including 5GW of renewable energy projects. As at FY21-end, of the group's total installed capacity mix, clean capacity's (gas, hydro, RE) share increased to 17.8% at 11,586MW. Non-fossil fuel capacity rose from 6.8% at FY20-end to 7.8% at FY21-end to 5,075MW.

- Generation: While standalone gross generation increased by 4.3% to 271BU, group gross generation increased by 8.2% to 314BU. Capacity addition plus acquisition of THDC and NEEPCO aided the growth. Coal PLF during FY21 was 66% while PAF was 91.4%. Two of NTPC's oldest units (Singrauli unit-1 and Korba unit-2) achieved more than 100% PLF during the year. Considering the severe decline in demand during H1FY21, this is an excellent operational performance.

- Receivables decline below FY20 levels: On the back of significant disbursals through the PFC/REC Aatmanirbhar scheme, as well as improvement in billing and collection by all discoms, NTPC's FY21-end receivables is estimated to have declined to Rs120bn-Rs140bn (45-48 days; overdue receivables are 50-60%). Even though receivables are still slightly above normative levels (45 days), the reduction is substantial considering that it had reached Rs268bn (with Rs191bn overdue receivables) at Q2FY21-end. NTPC has realised 100% of the amount (>Rs1trn) which it billed to discoms during FY21, for the first time in its history.

- Update on RE: Including the recent 150MW solar PV project bid win in GUVNL auctions, NTPC has won 1,510MW of solar bids in FY21: 350MW in Gujarat, 470MW in Rajasthan, 90MW in Kerala, and 600MW in Andhra Pradesh (currently stayed by HC). It has also signed MoUs with five states for setting up 17GW at UMREPPs [Gujarat (4.75GW) and Maharashtra (2.64GW) already signed].

MNRE is implementing CPSU scheme phase-II in which it is setting up 12GW of grid-connected solar PV projects through CPSUs including NTPC at a total estimated investment of Rs480bn. Third tranche of the phase for installing 5GW solar capacity is expected to be opened shortly.

Over the 5-year period FY23-FY27, NTPC RE plans to add 16.5GW of renewable capacity (subject to TBCB tender wins issued by Central and state agencies), as per MoP's response in Parliament. NTPC's JVs and subsidiaries will also set up RE capacity, in addition to the aforementioned target. Company's balance sheet strength will continue to drive its competitiveness in TBCB RE bids.

- Floating solar to be the next focus area: NTPC is developing India's largest floating solar PV project with capacity of 100MW, spread over 450 acres at the Ramagundam plant's reservoir in Telangana. Cost of the project is Rs4.2bn and it is expected to be commissioned by May'21. NTPC has also signed an MoU with DVC for setting up floating solar projects in reservoirs in DVC's command area. Other floating solar projects include 20MW at Auraiya (cost: Rs1bn), 25MW at Simhadri, and 92MW at Kayamkulam. NTPC has already installed 1MW floating solar plant at Kawas and 0.1MW at Kayamkulam. As these pilot projects were successful, the company is now going for higher-capacity floating solar plants at various locations. Floating solar projects have several advantages over land-based solar PV projects, such as: no additional land requirement, higher generation efficiency due to natural cooling, easier cleaning and quick installation, among others.

- Electric mobility and charging infrastructure: As per media reports (link), NVVN plans to issue tenders for 20 hydrogen-powered fuel cell-based EVs (10 cars and 10 buses) and may also invite bids for setting up two 1MW electrolysers for these vehicles (in Delhi and Leh). NTPC has deployed 14 electric buses in Andaman and Nicobar Islands. As per the MoP, a total of 970 public EV charging stations have been installed across India, of which, NTPC has installed 140 stations.

- Green hydrogen, other new-age businesses and pilot projects: Company is focusing on green hydrogen-based pilot mobility projects, as well as hydrogen blending in natural gas. Further, it is also working on pilot projects for green methanol, green ammonia, and microgrids.

- Increases share in RGPPL and exits KLL: NTPC purchased GAIL's share (25.51%) in Ratnagiri Gas and Power Pvt. Ltd. (RGPPL) and sold its own share (14.82%; on fully dilutive basis) in Konkan LNG Ltd. to exit completely. NTPC's shareholding in RGPPL (a subsidiary company) now stands at 86.49%.

- MoEFCC's order on emission norms released: As per the latest order by the Ministry of Environment, Forest and Climate Change, thermal power plants will now be categorised into three categories on the basis of their location as per the recommendation of the task force to be constituted by the Central Pollution Control Board. Post categorisation, the TPPs will be required to comply with the emission control norms as per the time limits mentioned below. This order pushes the deadline for installation of FGD units for most TPPs beyond 31st Dec'22, providing much-needed relief to the gencos, which suffered due to Covid-related implementation delays and financial bottlenecks. However, NTPC is the only company to have ordered out FGD for almost 85% of its units, hence will command a premium over the next few years when these norms come into effect.

Valuation methodology and risks

We maintain BUY on NTPC with target price remaining unchanged at Rs165/share. The stock is currently trading at FY22E standalone P/BV of 0.8x (P/E of 6.5x) and FY22E consolidated P/E of 5.8x with an expected earnings CAGR of 16% over FY20-FY22E.

Key risks to our call: i) Delay in capitalisation of assets leading to lower capital efficiency; and ii) lower than expected utilisation due to weak demand resulting in lower incentive income.

Shares of NTPC LTD. was last trading in BSE at Rs.107.75 as compared to the previous close of Rs. 106.45. The total number of shares traded during the day was 343692 in over 1715 trades.

The stock hit an intraday high of Rs. 108.7 and intraday low of 107. The net turnover during the day was Rs. 37079007.

Source : Equity Bulls

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