25 February 2021
Company Update | Sector: Utilities
NTPC
BSE SENSEX
51.039
S&P CNX
15,097
CMP: INR108
TP: INR141 (+31%)
Buy
MoP issues rules on late payment surcharge
The Ministry of Power (MoP) has issued a notification on Late Payment
Surcharge (LPS). As per the new rules, LPS would be based on one-year SBI
MCLR v/s a fixed rate of 18% p.a. specified in the tariff regulations issued by
CERC. In the current scenario, this would imply a LPS of 12-15% p.a.
We note that: a) despite the 18% p.a. CERC specified rate, NTPC is currently
charging 12% p.a. on overdue, which are settled under the Atmanirbhar
scheme, and b) NTPC’s WC borrowing cost has also declined ~300bp over
the past one year, thereby softening the impact of lower LPS rate. The
impact on P&L is therefore not significant. We had already baked in lower
LPS income (based on 12% p.a.) for FY22E/FY23E and hence leave
unchanged our estimates.
The overdue and LPS situation is a key monitorable, particularly with the
Ministry now stepping in to supersede the regulations set by CERC. The new
rules lay emphasis on reducing overdue as well, the addressing of which is
of prime importance.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
NTPC IN
9,895
1046.8 / 13.8
112 / 74
10/-27/-29
2685
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E
Sales
1,143 1,116
EBITDA
364.1 371.3
Adj. PAT
136.6 149.0
EBITDA Margin (%)
31.8 33.3
Adj. EPS (INR)
13.8 15.4
EPS Gr. (%)
19.2 11.3
BV/Sh. (INR)
120.1 126.8
Ratios
Net D:E
1.7
1.6
RoE (%)
11.9 12.3
RoCE (%)
6.5
7.3
Payout (%)
22.8 39.0
Valuations
P/E (x)
7.8
7.0
P/BV (x)
0.9
0.9
EV/EBITDA(x)
8.4
8.2
Div. Yield (%)
2.9
5.6
FCF Yield (%)
6.2 12.3
Shareholding pattern (%)
As On
Dec-20 Sep-20
Promoter
51.1
51.0
DII
33.6
35.0
FII
12.3
11.4
Others
3.0
2.6
FII Includes depository receipts
Stock Performance (1-year)
180
140
100
NTPC
2022E
1,275
415.8
163.3
32.6
16.8
9.6
135.5
1.5
12.8
7.5
41.6
6.4
0.8
7.4
6.5
15.7
Dec-19
54.1
30.6
12.8
2.5
Sensex - Rebased
MoP’s notification links LPS to MCLR
The MoP’s notification has linked the LPS rate to SBI’s MCLR. As per the new
rules, the rate of LPS would be equal to the one-year SBI MCLR + 500bp.
This rate would increase 50bp for every month of delay, with a cap of
300bp. The LPS will be in the range of one-year MCLR + 500bp to 800bp.
Currently, SBI’s one-year MCLR stands at 7%, thereby implying a LPS rate of
12-15% p.a. This is lower than the fixed rate of 18% p.a. specified under
CERC’s tariff regulations.
The above does not impact our estimate for NTPC. The company is currently
charging 12% p.a. on its overdue (settled under the Atmanirbhar scheme).
We had built in LPS income at a lower rate for FY22E/FY23E. The company’s
WC borrowing cost has also declined ~300bp over the past one year,
thereby softening the impact of a lower LPS rate.
The MoP has laid emphasis on reducing overdue. The notification calls for:
a) settling the LPS amount first during bill payments, (which means
DISCOMs cannot shy away from their LPS payments), and b) restriction on
short-term purchases in case of overdue of more than seven months. The
intent over here appears to provide a mechanism to control the rise in
overdue, which is important.
Receivables may hold the key; Maintain Buy
The MoP’s move to step in and cut the LPS rate, prima facie, does not instill
confidence as it reduces the penalty on DISCOMs on such dues. The
notification also calls for measures to address the overdue situation.
Reduction of these overdue, even at the cost of lower LPS income for NTPC,
would be taken positively as it reduces the risk of receivables ballooning.
LPS is largely a non-core income for the company and a reflection of the
stretch in WC/receivables.
60
;
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
13 February 2020
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