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NTPC's Q1FY19 results (Outperformer) - Beat estimates; improvement in key metrics

Q1FY19 result highlights

• NTPC EBITDA was Rs62bn and adjusted PAT was Rs25.5bn (+10.3%yoy; vs est of Rs24bn) for Q1FY19. PAT has been adjusted for prior period income and expenses. The beat in the estimates is led by better PAF in some of the newly commissioned power plants which was offset by lower PAF in some of older power plant and low other income. Note that other income dropped by 58% yoy to Rs1.4bn
• NTPC’s coal-based TPS recorded an average PLF of 78.9% (-107bps yoy) in Q1FY19. PAF for Q1FY19 for coal based TPS was 86% (-306bps yoy). FY18 profit was negatively impacted by Rs14bn of under recovery from low PAF at newly commissioned power plants.  We expect availability of stations to improve in FY19 leading to lower under recovery in FY19 and no under recovery from FY20 onwards.
• NTPC is expected to commercialise 5GW each in FY18 & FY19 respectively and another ~8GW of capacity is under advanced stages of commissioning/commercialisation. As a result, we estimate regulated equity to grow at 15% CAGR on standalone basis over FY18E-FY22E.
• The final order on GCV is expected soon. We expect CERC (the regulator) to provide relief to power generation companies (as per CEA recommendations) in the current fiscal year or FY20 onwards

Key positives: Improved availability at Solapur, Kudgi and Bongaigaon

Key negatives: Low availability at Mauda and shut down of Unchhahar; Delay in GCV resolution

Impact on financials: We reduce our FY19/FY20E earning by 3% to account for low other income during Q1FY19.

Valuations & view

Improving PAF of NTPC’s greenfield power plants and resolution on GCV will address concerns on the company’s earnings growth. Moreover, strong commissioning visibility and consequent 15% CAGR in regulated equity would commensurately enable 14% earnings CAGR over FY18-22E.  NTPC is attractively valued at 12x FY19E earnings, 1.3x FY19E BV and 3% dividend yield. We maintain Outperformer on the stock with a target price of Rs200. Adverse regulation by CERC for tariff period FY20E-24E (especially reduction of RoE due to lower interest rates) could pose a key risk for the stock.