27 August 2016
Annual Report Update
| Sector:
Utilities
BSE SENSEX
28,060
S&P CNX
8,650
NTPC
Buy
CMP: INR158
TP: INR199 (+26%)
NTPC FY16 annual report analysis
Core PAT up 18%
Key takeaways from NTPC’s FY16 annual report
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
158.0
170/112
1/10/24
13449.0
20.1
666
30.0
Core generation adj. PAT increased 18% YoY to INR81b, driven by
capitalization of INR154b on addition of 2GW to DC.
Losses at JVs declined from ~INR3b in FY15 to ~INR0.8b in FY16 on
reduction of losses at Ratnagiri and improved performance of Aravali.
Fuel cost declined 10% YoY to INR1.95/kwh. Gas & naphtha contributed
45% of decline in cost.
Contingent liabilities toward fuel cost increased sharply by 2.5x YoY to
INR21b. Contingent liability toward grade slippage was mentioned for the
first time.
We expect consolidated EPS to grow at 12% CAGR over FY16-20. Buy.
Generation adj. PAT up 18% YoY
NTPC’s standalone (NTPCsa) FY16 PAT of INR102b came in flat YoY. Adjusted PAT
was up 6% YoY to INR92b (Exhibit 1). NTPCsa generation adjusted PAT grew
INR13b YoY (+18%) to INR81b in FY16, as per our calculations (Exhibit 2).
Base RoE up 12%:
Base RoE grew ~INR5b YoY (+12% YoY) to ~INR61b as
regulated equity base increased by INR45b YoY to INR414b. Addition to gross
block was INR154b on commissioning of 1,960MW capacity. Overall gross
block, however, increased by INR183b to INR1,468b on foreign exchange and
other adjustments. Base RoE contributed ~74% of generation PAT.
PLF incentive:
PLF incentive increased by INR0.5b YoY (+36%) to INR2.1b
(pre-tax INR2.7b). Six plants had PLF of more than 85% in FY16, as against
five plants in FY15. Performance at Singrauli improved particularly – PLF of
~93% in FY16 from ~83% in FY15. PLF incentive contributed ~3% of
generation PAT.
Working capital interest:
Actual debt (~INR931b) was lower than normative
debt (~INR941b), implying working capital and part of project capital were
funded by equity. Regulator allows normative interest return on such
equity. Based on our calculation of normative working capital, NTPC earned
~INR11b (v/s ~INR12b in FY15) on pre-tax basis from working capital interest.
It provided pre-tax rebate/discounts of ~INR5b for early payments and
charged ~INR2b for late payments. Resultantly, net post-tax incentive from
working capital was at ~INR6b (unchanged YoY). Return on excess equity in
projects was insignificant (v/s. INR1.6b in FY15). The two components
contributed ~8% of generation PAT.
Heat rate and oil efficiency:
Based on our estimates of station heat rate and
oil consumption, NTPC earned ~INR1.9b from efficient operation of plant.
Financials Snapshot (INR b)
2016 2017E 2018E
Y/E Mar
Sales
787.1 820.4 965.0
EBITDA
191.6 228.2 301.9
NP
101.6
96.5 119.0
EPS (INR)
12.3
11.7
14.4
EPS Gr. (%)
1.7
-5.1
23.3
BV/Sh. (INR )
108.2 115.1 124.1
RoE (%)
11.9
10.5
12.1
RoCE (%)
7.3
6.8
8.2
P/E (x)
10.5
14.0
11.3
P/BV (x)
1.2
1.4
1.3
Shareholding pattern (%)
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
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
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.

NTPC
Stock Performance (1-year)
Under-recovery on O&M has declined:
Under-recovery on O&M was down to
INR0.6b in FY16 from INR6-7b prior to FY15. Weighted average normative O&M
charge in FY16 was INR1.92/MW, while actual O&M was INR1.94/kWh. Actual
O&M charge has declined from INR2.02/kWh in FY14 as water cess and capital
spares are allowed on actuals under the 2014-19 tariff regulations. Normative
O&M charge, on the other hand, has increased from INR1.84/kWh in FY14 as
per the regulation.
Other adjustments:
Other adjustments were INR10b (v/s. INR1.3b in FY15),
contributing ~13% of generation PAT.
Fuel cost decline aided by lower gas and naphtha
NTPC reported a 10% decline in unit fuel cost, from INR2.17/kWh in FY15 to
INR1.95/kWh in FY16.
Fuel cost declined ~INR50b YoY aided by decline in gas (~INR13b) and naphtha
(~INR9b) on lower related generation and unit price. Decline in gas and naphtha
represented 45% of the decline in fuel cost.
Specific coal consumption was down 1% YoY to 0.70kg/kWh, third consecutive
year of improvement in specific consumption.
Rationalization and swapping of linkages provided annualized saving of INR0.8b.
It swapped 0.5mt
MCL/SECL each
with SCCL for its Ramagundam plant. Simhandri
rationalized 1.5mt linkage with MCL, replacing with ECL.
Sipat swapped with GSECL
0.5mt SECL linkage
.
Contingent liability on fuel increased by INR15b YoY
Contingent liability towards fuel was INR21b, up from ~INR6b in FY15. Contingent
liability towards grade slippage was mentioned for the first time. However, this is a
pass through item to the beneficiary.
Working capital increased by 15 days YoY to 86 days on unbilled revenues
Working capital increased from INR142b (70 days of revenues) to INR168b (86 days
of revenues), primarily due to increase in unbilled revenues (INR25b in FY15 to
INR50b in FY16). Unbilled revenue comprises primarily billing for month of March
and partial billing on tariff orders that are yet to be approved.
Subs/JV losses declined from INR3b to INR0.8b YoY
Losses at subsidiaries and JVs declined from ~INR3b in FY15 to ~INR0.8b in FY16.
NTPC has invested INR78b in its subsidiaries and JVs as at the end of FY16,
representing ~9% of its net worth.
Aravali’s PAT increased from INR0.9b in FY15 to INR3.5b in FY16.
Losses at Ratnagiri gas station were down from INR4b in FY15 to INR2.7b in
FY16.
Losses at subsidiary Kanti Biliee (profit of INR112m in FY15 to loss of INR378m in
FY16) and JV Tamil Nadu (loss of INR434m in FY15 to INR1,374m in FY16), partly
offset the gains above.
27 August 2016
2

NTPC
Capitalization gaining momentum; EPS CAGR of 12% for five years
There is a minor -3% to +2% change to our consolidated PAT estimated for FY17-20E
post the annual report update. NTPC’s consolidated EPS is estimated to grow at a
CAGR of ~12% over FY16-20E. We expect DC to increase at a CAGR of 7.5% and
regulated equity to increase at a CAGR of 15% over FY16-21E. RoE is expected to
improve from 11.9% in FY16 to ~13.9% in FY20E. We value the stock at 1.6x FY18E
P/BV. Our TP is INR199/share. Maintain
Buy.
27 August 2016
3

NTPC
Exhibit 1: NTPCsa adjusted PAT – INR m
Reported PAT
Adjustments:
Less: Prior period sales
Less: Prior period/extra-ordinary income
Less: Tax for earlier period
Add: Income tax refunded to DISCOMs
Adjusted PAT
FY12
92,237
5,478
3,136
-1,548
2,661
87,834
FY13
126,194
12,419
17,138
1,589
-2,460
92,588
FY14
109,749
20,868
-128
4,370
2,700
87,340
FY15
102,909
6,796
3,338
19,525
13,994
87,243
FY16
102,429
507
2,082
24,535
16,937
92,241
Source: MOSL, Company
Exhibit 2: Generation adjusted PAT – INR m
Adjusted PAT
Less: Non-core incomes
Other income
Consultancy revenue
Provision w/back
Add: Non-core expenses
Expenses
Tax on other income
Generation adjusted PAT
FY12
87,834
27,897
1,427
3,159
1,639
5,803
62,793
FY13
92,588
31,188
1,268
9,078
1,327
7,565
59,946
FY14
87,340
26,459
1,127
1,999
1,107
7,759
66,622
FY15
87,243
21,163
1,098
1,862
2,424
3,036
68,581
FY16
92,241
11,893
1,171
1,545
2,204
1,373
81,210
Source: MOSL, Company
Exhibit 3: Generation adjusted PAT break-up – INR m
Generation adjusted PAT
Base RoE
RAB
Tax recovery
PLF incentive
SHR efficiency
Secondary fuel oil efficiency
Aux/O&M net under-recovery
Working capital incentive
Debt return on equity funding
Others
FY12
62,793
40,742
271,620
4,020
5,527
7,173
2,688
-3,882
7,624
566
-1,664
FY13
59,946
46,297
325,760
-1,421
5,473
5,631
1,606
-5,462
6,565
686
572
FY14
66,622
52,496
351,605
4,685
8,266
8,899
2,475
-4,768
5,300
1,154
-11,884
FY15
68,581
55,859
369,160
0
1,573
1,412
562
-325
6,539
1,613
1,346
FY16
81,210
60,711
414,204
0
2,143
1,436
442
-355
6,314
26
10,492
Source: MOSL, Company
Exhibit 4: Working capital (INR b) and days of revenue
Inventories, deb., pay.
Unbilled revenue
Net advances
No. of days (of revenue) - RHS
86
64
66
19
42
FY14
FY15
FY16
Source: MOSL, Company
70
25
27
91
50
23
95
64
56
56
2
43
FY13
56
5
51
FY12
27 August 2016
4

NTPC
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Interest
Other Income - Rec.
Exceptional item
Profit before Tax
Tax
Tax Rate (%)
Reported PAT
2012
620,522
12.7
483,260
137,263
22.1
27,917
109,346
17,116
27,897
3,136
123,262
31,024
25.2
92,237
2013
657,370
5.9
486,699
170,672
26.0
33,968
136,704
19,244
31,188
17,138
165,786
39,592
23.9
126,194
2014
789,506
20.1
592,401
197,106
25.0
47,700
149,406
32,031
27,601
-119
144,858
30,824
21.3
114,034
2015
806,220
2.1
634,280
171,941
21.3
55,646
116,295
35,704
20,789
3,182
104,562
4,638
4.4
99,924
2016
787,055
-2.4
595,423
191,632
24.3
61,534
130,098
41,513
12,341
110
101,035
-589
-0.6
101,624
2017E
820,402
4.2
592,185
228,217
27.8
69,776
158,441
49,478
14,330
33
123,327
26,848
21.8
96,478
(INR Million)
2018E
965,002
17.6
663,147
301,855
31.3
89,538
212,317
73,406
10,696
0
149,607
30,608
20.5
118,999
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Others
Current Liabilities
Payables
Other current liabilities
Net Working Capital
Application of Funds
E: MOSL Estimates
2012
82,455
650,457
732,912
0
502,789
6,369
1,242,070
818,283
365,719
452,564
418,279
95,839
441,626
37,029
58,325
177,643
69,377
99,253
166,237
44,607
121,631
275,389
1,242,070
2013
82,455
721,421
803,875
0
581,461
9,153
1,394,489
1,032,457
403,096
629,361
371,094
91,376
519,333
40,572
53,650
184,902
113,790
126,420
216,676
51,324
165,352
302,657
1,394,489
2014
82,455
790,843
873,297
6,804
814,549
12,393
1,707,044
1,313,937
471,858
842,080
538,250
16,635
603,487
59,885
67,257
186,876
173,875
115,595
293,408
72,240
221,168
310,080
1,707,044
2015
82,455
738,485
820,940
8,879
1,022,520
12,656
1,864,995
1,443,608
525,077
918,530
675,547
141
601,543
79,725
92,499
161,390
190,883
77,046
330,766
71,076
259,690
270,777
1,864,995
2016
82,455
809,511
891,965
8,928
1,120,194
14,094
2,035,181
1,632,140
587,180
1,044,959
815,497
148
543,886
79,592
101,740
57,370
202,075
103,110
369,310
68,266
301,044
174,577
2,035,181
2017E
82,455
866,411
948,865
8,928
1,274,607
14,094
2,246,495
1,880,518
656,956
1,223,562
894,203
148
501,398
62,878
81,635
51,700
202,075
103,110
372,817
71,773
301,044
128,581
2,246,495
2018E
82,455
940,884
1,023,339
8,928
1,415,923
14,094
2,462,284
2,529,052
746,494
1,782,559
570,260
148
492,247
66,655
90,398
30,009
202,075
103,110
382,930
81,886
301,044
109,318
2,462,284
27 August 2016
5

NTPC
Financials and Valuations
Ratios
Y/E March
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoIC (Post-tax)
RoCE (Post-tax)
Working Capital Ratios
Debtor (Days)
Inventory (Days)
Payable (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/EBITDA
Net Debt/Equity
2012
11.2
14.6
88.9
4.0
35.8
2013
15.3
19.4
97.5
5.8
37.6
2014
13.8
19.6
105.9
5.8
41.6
2015
12.1
18.9
99.6
5.8
47.4
2016
12.3
19.8
108.2
3.4
27.2
2017E
11.7
20.2
115.1
4.0
34.2
2018E
14.4
25.3
124.1
4.5
31.2
12.0
7.7
1.5
12.0
4.0
10.5
6.6
1.2
11.1
2.6
14.0
8.1
1.4
11.3
2.4
11.3
6.5
1.3
9.1
2.8
13.1
15.9
9.0
16.4
16.0
9.7
13.6
13.7
9.4
11.8
11.2
7.4
11.9
11.9
7.3
10.5
10.1
6.8
12.1
10.7
8.2
34
22
26
30
23
28
31
28
33
42
36
32
47
37
32
36
28
32
34
25
31
2.7
8.0
2.4
0.4
2.4
8.7
2.3
0.5
2.1
5.5
3.2
0.7
1.8
3.8
5.0
1.0
1.5
3.4
5.5
1.2
1.3
3.5
5.4
1.3
1.3
3.0
4.6
1.4
Cash Flow Statement
Y/E March
Profit/(Loss) before Tax
Interest
Depreciation
(Inc)/Dec in WC
Tax paid
others
CF from Operations
Capex
(Pur)/Sale of Investments
Acquisition in subsidiaries
Int. & Dividend Income
Other investing activities
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
finance cost
Dividend (incl. tax)
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
123,262
39,697
27,917
-23,494
-17,607
-11,109
138,666
-130,577
18,039
-6,847
9,019
-1,938
-112,304
2013
165,786
19,021
33,968
-5,971
-28,956
-28,896
154,952
-162,912
16,225
-12,503
19,021
-140,169
2014
144,858
31,643
47,700
-13,109
-26,867
-18,917
165,308
-189,485
16,225
0
18,166
18,851
-136,243
2015
104,562
35,286
55,646
-11,694
-20,100
-16,242
147,459
-191,772
16,391
0
17,037
145
-158,200
2016
101,035
41,090
61,534
-36,422
-14,584
1,452
154,106
-232,470
16,536
0
9,528
-16,514
-222,920
2017E
123,327
49,478
69,776
40,325
-26,848
-14,330
241,727
-327,085
0
14,330
-312,754
(INR Million)
2018E
149,607
73,406
89,538
-2,427
-30,608
-10,696
268,820
-324,591
0
10,696
-313,895
52,135
-39,693
72,624
-39,461
93,854
-62,429
205,811
-72,371
80,528
-83,473
-41,146
13
-28,691
-2,330
179,973
177,643
-40,688
0
-7,524
7,259
177,643
184,902
-58,719
203
-27,091
1,975
184,902
186,876
-148,385
200
-14,745
-25,486
186,876
161,390
-33,513
1,252
-35,206
-104,021
161,390
57,369
154,414
-49,478
-39,578
65,357
-5,670
57,369
51,700
141,316
-73,406
-44,525
23,384
-21,691
51,700
30,009
27 August 2016
6

NTPC
NOTES
27 August 2016
7

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NTPC
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Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
27 August 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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