Buy NTPC, says Ventura Securities

Ventura Securities is bullish on NTPC and has recommended buy rating on the stock in its January 23, 2013 research report.

“NTPC’s revenue increased by 3% YoY (declined by 2.1% Q-o-Q) to Rs. 15774.9 crore. The company has produced 60.19 bn units (up 6.5% YoY and 14% QoQ) in Q3FY13. Despite higher production, lower than expected revenue may be attributed to lower off-take. EBITDA margins improved by 657 bps YoY to 25.5% primarily due to lower fuel and staff cost. During the quarter, one unit of 550 MW at Rihand project has been declared commercial w.e.f. 19th Nov. 2012. NTPC’s reported PAT grew by 22% YoY to Rs 2596 crore in Q3FY13.”

“Adjusted PAT (After excluding Rs 29.9 crore of prior period sales and Rs 0.018 crore of prior period tax recovered net of expensed) was up by 21% YoY to Rs 2566 crore. Other income decreased by 16% YoY and 12% QoQ to Rs 720 crore. The depreciation was higher by 10% YoY (5% QoQ) to Rs 820 crore led by new capacity addition. During the quarter, the gross generation increased by 6.6% YoY to 60.1bn units, backed by 2,820 MW of capacities being declared commercial on a YoY basis. Coal and Gas PLFs for Q3FY13 stood at 84.1% and 59% respectively. While PAF of Coal and Gas for Q2FY13 stood at 88.6% and 93.8% respectively. Average realization in Q2FY13 stood at Rs 2.8/kwhr while fuel cost was Rs 1.8/kwhr. Regardless of concerns, NTPC has not been facing any significant shortfall in supply from Coal India. In 3QFY13, it received 38.3mnt of domestic coal. The percentage of blending stood at 8.4% during FY12.”

“On the back of preference NTPC gets in domestic coal supply and ability to pass through hike in fuel costs, we believe the company is well placed in terms of fuel security as compared to peers. Further, the incumbent capacity addition augurs well for future growth. At the CMP of Rs 161, NTPC trades at a PE multiple of 11.9x and 11.0x FY14E & FY15E consensus earnings estimates. We recommend a buy on the stock amidst alleviating concerns on coal supplies leading to lower PAF. If company can get higher fuel supplies from Coal India and imported coal, PAF and PLFs can improve leading to higher generation. Higher than expected capacity addition coupled with high PAF and PLF can result in re-rating of the stock,” says Ventura Securities research report.

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