NTPC: Q4FY11 Results Update

Tax Benefit supports FY11

NTPC’s provisional results were below expectations. Further, FY12 capacity addition guidance is likely to be missed as evident from: (a) FY11 capex being significantly lower than guidance and (b) implied capacity addition from FY12 generation volume guidance being lower than actual guidance. NTPC reported Net sales of Rs 53,721cr (up 16% YoY) and PAT of Rs 8,826 cr (up 1% YoY) in FY11. Reported PAT includes ~Rs 1,000 cr worth one-time tax gain from grossing up of RoE for tariff calculation on full tax vs. MAT.

Key highlights:

·     Capacity addition target missed in FY11: NTPC commissioned 2,490 MW & commercial ops for 1,600 MW vs. guidance of 4,150MW.

·     PLF impacted due to coal supply and demand: PLF declined by ~300bps to ~88% due to inadequate supply of domestic coal and infrastructure bottlenecks for transporting imported coal. Thus volume growth was barely 1% at 220.5 bn units vs. installed capacity addition growth of 8%.

·     Capacity addition target for FY12 may be missed: The management is guiding for 4,320 MW of capacity addition for FY12 vs. ~5,500 MW earlier. However, we believe this target may not be achieved as inferred from: A) NTPC missing its FY11 capex guidance of Rs 22,400 cr by a wide margin (actual capex was at Rs 12,800 cr) – indicating delays; B) FY12 generation target of 235 bn units vs. 220.5 in FY11 implying an incremental capacity of ~2,000 MW.

·     Challenges in coal sourcing mounting: NTPC incrementally requires ~16 MMT of coal in FY12, of which ~13 MMT is from domestic sources. We believe this would be a challenge, since Coal India has guided for incremental production of ~16 MMT in FY12E.

Earnings growth to be muted in FY12; Maintain HOLD

Earnings growth in FY12 is likely to be muted due to absence of one-time tax benefit. Lower coal availability could put further pressure on earnings through incentives (~22% of FY11). Target Price of Rs 182/sh takes into account LT sustainable core RoE of 23% (NO hick-ups in PLF due to coal availability & NO changes in tariff policy due in 2013) & LT growth of 5%.