ntpc company update

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India Equity Research October, 2012

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i Fortune

NTPCS NTPCM‐cap Rs1393bn | CMP: Rs168 | TP: Rs170

Ravikiran [email protected]+91 22 4300 3825

Fortune Group

+91 22 4300 3825

ick CMP: Rs168 Target price: Rs170

Sector outlook: Neutral Power utilitiesNTPC

India Equity Research

Hold

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i Sector outlook: Neutral Power utilitiesNTPC

Increase in pace of capacity addition: During the 11th Five-Year Plan (FY08-12), NTPC (standalone)added 5.6GW of commercial capacity, while the NTPC group added 8.1GW. This translates into agrowth rate of ~4%. Based on CEA’s project monitoring, we expect NTPC to add 13.6GW at the

Hold

(Rs mn) FY13E FY14E FY15E

Net sales 709 257 788 352 906 332

Key financials (Y/E March) – Standalone

S standalone level and 17.7GW at group level. The pace of commercial capacity addition is set to almostdouble (8% CAGR over FY12-17E). Higher capacity addition would improve overall return ratios with ashift from low yielding assets to those yielding regulated returns of 15.5%

Regulated equity to grow to 1.8x of FY12-end regulated equity in next 5 years: As a result ofincrease pace of capacity addition, NTPC’s regulated equity is expected to grow to 1.8x that FY12-endin the next 5 years. The addition to regulated equity during the 11 Five-Year Plan was only 1.4x.

Net sales 709,257 788,352 906,332

Growth (%) 15.8 11.2 15.0

EBITDA 147,733 161,510 179,694

EBITDA (%) 22.2 20.8 20.5

PAT 89,508 92,637 96,848

Accretion to regulated equity, plant availability and efficiency gains would be the key drivers for NTPC’searnings growth.

Fuel security better than peers, blending not to exceed 10%: Based on the existing ACQquantities under FSAs and assuming that 60% of the requirement for incremental generation would besupplied through LoA route, blending of imported coal need not exceed 10% (FY14E). Blending was at8.4% in FY12. With ~125mt of coal available as ACQ with the trigger level at 90%, higher imports and

Growth (%) 8.6 3.5 4.5

Diluted EPS 10.0 10.9 11.2

(x) FY13E FY14E FY15E

Valuation /Ratios

captive coal blocks (Pakri Barwadih coal mine is expected to start production in FY14), NTPC’s PAF maynot be affected materially from current levels.

Fair value at Rs170/share: We have calculated NTPC’s regulated equity invested in projects andvalued them at P/B 2.3x Sept 14E (and not on book net worth, as RoE on regulated equity is muchhigher at 21-22%). Secondly, equity invested in CWIP is valued at only 0.5x as the project startsearning RoE only on becoming operational Thus equity locked in CWIP is not earning any return

( )

P/E 15.6 15.0 14.4

P/B 1.8 1.7 1.6

EV/EBITDA 12.4 11.7 10.7

earning RoE only on becoming operational. Thus, equity locked in CWIP is not earning any return. EV/Sales 2.6 2.4 2.1

RoE (%) 11.8 11.4 11.2

RoCE (%) 7.6 7.3 7.3

Fortune GroupSee Disclaimer at the end of the report.

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Capacity addition to accelerate


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i Capacity addition to accelerateCommercial capacity at year end Regulated equity to grow 1.8x in next 5 years

S

Source: CEA, Company, Fortune Research Source: CEA, Company, Fortune Research


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Valuation


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i Valuation

Valuation multiple Value in Rs bn Rs/share

B k l f ti t 2 3 S t14E I t d E it 948 115 S Book value of operating assets 2.3x Sept14E Invested Equity 948 115

CWIP 0.5x equity portion of Sept14E CWIP 60 7

8.5% tax free bonds 1x FY14E 24 3

Cash 1x FY14E 194 24 Cash 1x FY14E 194 24

Subsidiaries and JVs -Generation 2.3x P/B FY14E 117 14

Other Subsidiaries and JVs 12x P/E FY14E 9 1

Add: value of mining assets NPV at CoE of 16% 50 6

Target Price 1,401 170


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Profit & Loss Account (Rs mn) FY11 FY12 FY13E FY14E FY15E

Net Sales 549,387 612,258 709,257 788,352 906,332

Raw Materials 353 738 416 355 496 632 553 135 644 651

Balance Sheet FY11 FY12 FY13E FY14E FY15E

Equity capital 82,455 82,455 82,455 82,455 82,455

Reserves & Surplus 596,468 650,457 702,518 756,399 807,064

S Raw Materials 353,738 416,355 496,632 553,135 644,651

Employee Cost 27,897 30,905 35,164 40,713 47,138

Other Expenses 26,460 28,907 29,729 32,994 34,849

Total Expenditure 408,095 476,167 561,524 626,842 726,639

Net worth 678,923 732,912 784,973 838,854 889,518

Minority interest - - - - -

Total debt 431,882 502,672 623,184 689,507 735,827

Total 1,126,345 1,257,600 1,422,460 1,542,664 1,639,648

Net block 392,360 452,584 609,461 778,151 917,457

EBITDA 141,292 136,091 147,733 161,510 179,694

Other Income 18,058 26,963 24,781 23,652 22,295

Interest 14,378 17,116 17,434 20,523 25,953

Depreciation 24,857 27,917 34,123 41,123 46,904

Capital WIP 333,263 400,233 403,828 340,520 279,379

Total fixed assets 775,066 870,862 1,013,289 1,118,671 1,196,836

Investments 123,448 112,064 95,840 79,320 62,800

Net Working capital

Current Assets 353,972 411,733 475,520 506,689 546,157 p , , , , ,

PBT 119,866 117,619 120,957 123,516 129,131

Total tax 33,407 31,364 31,449 30,879 32,283

PAT 86,459 86,255 89,508 92,637 96,848

Inventories 36,391 37,029 67,543 75,110 86,198

Debtors 79,243 114,486 112,495 126,921 146,989

Cash & bank 161,856 161,461 185,087 185,562 202,146

Other Current Assets 76,481 98,758 110,396 119,096 110,824

Current Liabilities & P i i 130,729 150,779 162,189 162,017 166,144

Less: Adjustments - - - - -

Adjusted PAT 88,690 82,388 89,508 92,637 96,848

Provisions 130,729 150,779 162,189 162,017 166,144

Creditors 76,279 95,770 107,180 107,008 111,135

Other liabilities 26,926 16,816 16,816 16,816 16,816

Provisions 27,524 38,193 38,193 38,193 38,193

Miscellaneous Exp 4,592 13,719 - - -

l 26 3 8 2 600 22 60 2 66 639 6 8


Total 1,126,348 1,257,600 1,422,460 1,542,664 1,639,648

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Cashflow Statement (Rs mn) FY11 FY12 FY13E FY14E FY15E

PAT 86,459 86,255 89,508 92,637 96,848

Add: Depreciation 24,857 27,917 34,123 41,123 46,904

Ratios FY11 FY12 FY13E FY14E FY15E

% of net salesRaw material costs 64.4 68.0 70.0 70.2 71.1Employee costs 5.1 5.0 5.0 5.2 5.2Total expenses 74.3 77.8 79.2 79.5 80.2S Add: Interest expense 14,378 17,116 17,434 20,523 25,953

Less: Other income (18,058) (26,963) (24,781) (23,652) (22,295)

Change in working capital (8,677) (31,630) (36,464) (30,866) (18,757)

Others - - - - -

Cash flow from operations 98,959 72,696 79,820 99,765 128,654

Total expenses 74.3 77.8 79.2 79.5 80.2

EBIDTA 25.7 22.2 20.8 20.5 19.8

PAT 15.7 14.1 12.6 11.8 10.7Asset based ratios (%)ROCE 9.0 8.3 7.6 7.3 7.3ROE 13.3 12.2 11.8 11.4 11.2Turnover ratios (days)Debtor days 48.2 57.3 58.0 55.0 54.8

operations , , , , ,

Change in fixed assets (131,267) (123,713) (176,550) (146,506) (125,068)

Change in investments 24,623 11,383 16,225 16,520 16,520

Other income 18,058 26,963 24,781 23,652 22,295

Others - - - - -

Cash flow from

Inventory days 23.2 21.9 26.9 33.0 32.5

Creditors days 68.2 75.4 74.6 70.7 61.8

Working capital days 140.8 144.3 147.8 152.3 145.9Growth ratios (%)Net Sales 18.5 11.4 15.8 11.2 15.0EBITDA 13.9 (3.7) 8.6 9.3 11.3EPS 5.3 (7.1) 8.6 3.5 4.5CEPS (1 7) 2 6 8 3 8 2 7 5Cash flow from

investing activities (88,585) (85,367) (135,544) (106,334) (86,253)

Change in debt 53,912 70,789 120,512 66,323 46,320

Dividend & dividend tax (36,480) (38,261) (37,447) (38,756) (46,184)

Change in equity & share premium (0) - - - -

Interest paid (14,378) (17,116) (17,434) (20,523) (25,953)

CEPS (1.7) 2.6 8.3 8.2 7.5

Per share (Rs)

EPS 10.8 10.0 10.9 11.2 11.7CEPS 13.5 13.8 15.0 16.2 17.4BV 82.3 88.9 95.2 101.7 107.9DPS 3.8 4.0 3.9 4.0 4.8Valuations (x)P/E 17.9 17.7 15.6 15.0 14.4

Other Adjustments - - - - -

Cash flow from financing activities 3,054 15,412 65,631 7,044 (25,817)

Change in cash & cash equivalents 12,689 (6,387) 23,626 476 16,584

Opening cash and cash equivalents 144,595 161,856 161,461 185,087 185,562

Closing cash and cash 161 856 161 461 185 087 185 562 202 146

P/CEPS 14.3 12.8 11.3 10.4 9.7P/BV 2.3 2.0 1.8 1.7 1.6Yield (%) 2.0 2.3 2.3 2.4 2.8EV/EBITDA 13.2 13.2 12.4 11.7 10.7EV/sales 3.4 2.9 2.6 2.4 2.1Solvency ratiosCurrent ratio 2.7 2.7 2.9 3.1 3.3Quick ratio 1.2 1.1 1.1 1.1 1.2


equivalents 161,856 161,461 185,087 185,562 202,146 Quick ratio 1.2 1.1 1.1 1.1 1.2D/E ratio 0.6 0.7 0.8 0.8 0.8

Interest coverage ratio 6.7 5.8 5.9 5.3 4.5

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Investment Ratings (Returns)


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i Buy (>10%) Hold (-10 to 10%) Sell (<-10%)

Disclosures & Disclaimers This report has been prepared by “Fortune Group” represented by Fortune Financial Services (India) Ltd, Fortune Equity Brokers (India) Ltd, Fortune Commodities &Derivatives (India) Ltd, Fortune Financial India Insurance Brokers Ltd. and Fortune Credit Capital Ltd.

Suitability and Risk: This report is prepared and distributed for the personal information of the recipient and neither the information contained herein nor any opinionexpressed should be construed or deemed to be construed as solicitation or as offering advice for the purpose of the purchase or sale of any security, investment orS expressed should be construed or deemed to be construed as solicitation or as offering advice for the purpose of the purchase or sale of any security, investment orderivatives. Each recipient of this report should make such investigations as they deem necessary to arrive at an independent evaluation of purchase, sale or investmentin the securities of the company(s) referred to in this report (including the merits and risks involved), and should consult their own advisors to determine the merits andrisks of such purchase, sale or investment with the “Fortune Group” not soliciting any action based upon it. This report is not to be construed as an offer to sell or thesolicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.

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