Reduce NTPC; target of Rs 158: Emkay

Emkay Global Financial Services is bearish on NTPC and has recommended reduce rating on the stock with a target of Rs 158 in its October 23, 2012 research report.

“NTPC’s 2Q13 APAT at Rs18.3bn, up 8%yoy, is in line with our estimate of Rs18.4bn. Reported PAT of Rs31.4bn was adjusted with – 1) Rs10.1bn of prior period sales, 2) Rs2.5bn of prior period tax recovered net of expensed, 3) Rs2.1bn of interest from customers and 4) Rs1.9bn of forex impact in interest expense reversed as per change in Accounting Standard 11. Availability (PAF) during the quarter was 80% for coal and 90% for gas based plants vs. 83% and 92% in 2Q12. 8%yoy growth in APAT vs. 14%yoy growth in regulated equity indicates that NTPC’s RoE continues to coming down. 2Q13 avg RoE stood at 4.09% vs. 4.14% in 2Q12. Coal and Gas PLF (75% & 58%) were also lower compared to last year (78% & 83%) including 5.1BU (1.9BU in 2Q12) of generation loss due to fuel supply. We have fine tuned our FY13E and FY14E estimates based on 1H13 performance. Our revised EPS now stands at Rs11.2 and Rs12.0 respectively”

“Business model of NTPC is undergoing structural changes with Core RoE of NTPC has come down from 27% in FY11 to 24.7% in FY12 & 2Q13 hints further slide. Moreover, ROE from tax grossing up (2.5%) is still built in which is likely to go. Though we have assumed FY12 RoE to sustain in our estimates but we believe that there is a strong case of it to start coming down gradually from 4Q13 by about 4-5%. This would be on account of 1) lower coal supplpies from CIL in its pre FY09 plants, 2) grossing up of tax and 3) UI and heat rate incentives. We downgrade the stock to ‘Reduce’ and roll over our price target to FY14E. Our rolled over price target is Rs158/share assuming 150bps decline in NTPC’s core RoE (24.7%). Key risks - (1) incr. in PAF on higher CIL supplies for its old plants, assuming CIL takes decisions based on commercial gains and (2) advantage in ABT system from price pooling,” says Emkay Global Financial Services research report.    

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