1 August 2016
Update
| Sector:
Utilities
BSE SENSEX
28,003
S&P CNX
8,637
NTPC
Buy
CMP: INR159
TP: INR185(+16%)
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Analyst meet takeaways
Focused on completing ongoing projects and improving schedule
We attended the analyst meet and interacted with board members. The key
takeaways are as follows:
Kudgi overcomes bottlenecks:
NTPCgrp (NTPC group) is likely to achieve CoD
(commercial operation date) of 2,155MW coal capacity in FY17E. Of this,
1,355MW has already been commissioned. Kudgi’s first unit of 800MW is likely
to get commissioned by October 2016 as it has overcome project bottlenecks
(e.g. railways siding, CHP and water availability). CoD will be achieved within
FY17E. The CoD targeted is lower than our estimate of 3,150MW. In addition,
760MW solar capacity will be commissioned. There will be spillover of CoD in
FY18 for unit 2 of 800MW at Kudgi and 195MW at Kanti. Hence, there is some
risk to capitalization of INR282b assumed in our model for FY17E.
FY18E capitalization on track:
Although there will be some slippage in FY17E,
capitalization on account of expected CoD of 8GW capacity in FY18E is not at
risk.
Lower fuel cost helping in getting schedule:
NTPCsa is benefiting from
declining fuel costs. Although fuel cost is pass-through, it is helping in getting
schedule. As a result, power generation has increased by 10% in 1QFY17E.
No visibility on capex related to revised SOx and NOx norms:
There are
significant technical challenges in adhering to new norms in existing plant.
Deliberations are still going on with the ministry.
Investment in fertilizer plant through JV:
Work on structuring the project is
still on, which is likely to get certain assured RoE. In addition, the project is
likely to have chemical production capabilities.
New projects may be re-bid:
NTPC’s new projects (i.e. 2650MW Barethi and
4000MW Pudimatka) are facing multiple headwinds. Therefore, they will
eventually be re-bid.
Ind-AS impact:
Although NTPC is working on sorting out issues under Ind-AS,
the impact on earnings is likely to be negligible. However, projects like Tanda
may be identified as service lease agreement, but it will still not affect RoE and
earnings.
Strong business model; EPS CAGR of 10%:
NTPC has one of the best business
models in the Indian power sector as RoE is assured and revenue is guaranteed by
a tri-partite agreement with the RBI. NTPC is in the midst of major capacity
expansion. Regulated equity, a key earnings driver, will grow at a CAGR of 14.9% to
INR829b. We expect NTPCgrp’s EPS to grow at a slower pace than regulated equity,
but achieve healthy five-year CAGR of ~10% (over FY16-FY21) to INR19.5/share in
FY21E. We value the stock at INR185/share based on 1.5xFY18E book value.
Maintain
Buy.
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg. Val, INR m
Free float (%)
NTPC IN
8,245.5
160 / 107
-1/5/19
1313.9
19.7
660
30.0
Financials Snapshot (INR b)
2016 2017E 2018E
Y/E Mar
Sales
787.1 825.4 965.8
EBITDA
191.6 221.3 288.9
NP
101.6
95.1 112.9
EPS (INR)
12.3
11.5
13.7
EPS Gr. (%)
1.7
-6.4
18.8
BV/Sh. (INR )
104.7 109.0 115.5
RoE (%)
12.1
10.8
12.2
RoCE (%)
7.3
6.8
8.0
P/E (x)
10.5
13.8
11.6
P/BV (x)
1.2
1.5
1.4
Shareholding pattern (%)
As On
Jun-16 Mar-16 Jun-15
Promoter
70.0
70.0
75.0
DII
16.9
17.0
12.7
FII
11.0
10.8
10.0
Others
2.2
2.3
2.3
FII Includes depository receipts
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549