CRISIL maintains valuation grade of 5/5 to NTPC

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CRISIL maintains valuation grade of 5/5 to NTPC

CRISIL Research has come out with its report on NTPC. The research firm has maintained the fundamental grade of 5/5 to the company in its February 3, 2012 report.

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CRISIL Research has come out with its report on NTPC . The research firm has maintained the fundamental grade of 5/5 to the company in its February 3, 2012 report.

NTPC Ltd's (NTPC's) Q3FY12 results were below CRISIL Research's expectations. Net profit dropped y-o-y as coal shortage resulted in lower incentive income. The company's repair and maintenance (R&M) activities, which usually take place in Q4, happened in Q3, resulting in higher R&M expenses; this too impacted profits this quarter. The management has indicated in the conference call that coal supply and the plant availability factor (PAF) have improved significantly in January 2012. However, the full-year PAF will be lower than our earlier expectations. Consequently, we have reduced our earnings estimates. We believe NTPC is better placed in the troubled power sector. Consequently, we maintain the fundamental grade of 5/5.

Q3FY12 standalone result analysis
• NTPC's Q3FY12 generation increased 3.0% y-o-y (10.8% q-o-q) on account of higher installed capacity (commercial capacity of 34 GW vs. 29 GW). While PLF of coal stations declined from 87.2% in Q3FY11 to 83.6%, PLF of gas stations increased from 66.3% in Q3FY11 to 70.5%.

• PAF of coal stations declined 8.4% y-o-y to 85% whereas that of gas stations declined 1.1% y-o-y to 94%. The strike at Singareni Collieries Company Ltd (SCCL) and lower coal supply from Coal India Ltd (Coal India) resulted in lower PAF. The decline in PAF affected NTPC's incentive income.

• Revenues increased 14.5% y-o-y (down 0.2% q-o-q) on account of higher generation and pass through of higher fuel cost in tariffs.

• EBITDA declined 18.1% y-o-y (9.8% q-o-q) to Rs 29.6 bn due to lower incentive income and increase in other expenditure. Other expenditure increased 15% y-o-y due to preponing of R&M activities.

• Tax expenses declined by 58.4% to Rs 4.3 bn due to reversal of Rs 3.1 bn of tax provision related to earlier years.

• Adjusted profits declined by 5.4% y-o-y (10.2% q-o-q) to Rs 21.8 bn.

Consolidated earnings estimates - revised downwards
We have revised our FY12 earnings estimates downwards on account of lower PAFs and incentive income. We have also lowered our FY13 earnings estimates based on lower capacity addition expectations.

Valuations: Current market price has strong upside
We continue to use the discounted cash flow method to value NTPC. We introduce FY14 estimates and roll forward our valuation to FY14. We have increased our cost of equity by ~50 bps to 15% to reflect higher sectoral risks. Our fair value has increased from Rs 232 to Rs 238. Our valuation grade is 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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