NTPC's Q1FY20 results (Outperformer) - Strong op metrics but profit lags
Q1FY20 result highlights
- NTPC reported a good quarter with sharp improvement in operating metrics. PAF for the quarter was 91.1% (+516bps yoy). Notably, the PAF for all the troubled power plants has improved significantly (details later). Note that PAF in July 19 was also 89% (+487bps). Under recovery reduced from Rs4.6bn to Rs1bn
- However, NTPC adj EBITDA came in at Rs68bn and adjusted PAT came in at Rs26.1bn (+5%yoy; vs. est of Rs29bn) for Q1FY20. As per management, the profit has been impacted by changes in DSM/UI regulations in January 2019 and usage of old coal with lower GCV (total impact is Rs2bn each – total Rs4bn). Note that the DSM regulations have been reversed from June 2019 and the impact of the same going forward would be NIL.
- Consolidated adjusted PAT grew by 10% yoy to Rs28bn led by improvement in PAF of power plants operating under subsidiaries.
- NTPC commercialised 1.3GW in Q1 (660MW in standalone entity and 660MW in JV). Regulated equity grew by mere 4% yoy due to write off of Rs28bn related to old power plants with higher than 50% equity.
- CERC had issued new regulations for FY20-FY24E in March 2019. Under the CERC new regulations, return on equity are likely to increase by 200bps led by allowance of 85Kcal for GCV of coal from unloading point to firing point and increase in O&M expenses. Though the impact in the first quarter is not seen in the profit, we expect profit to improve in coming 9 months
Key positives: Strong plant availability factor for the quarter
Key negatives: Muted growth in rep. profit despite positive regulations
Impact on financials: Maintain our FY20E/FY21E estimates
Valuations & view
We believe FY20 earnings will be driven by no under recovery due to better coal availability at recently commissioned power plants and favourable regulations such as relief on GCV (85Kcal/Kwh). Moreover, 14GW of power plants are under advanced stages of construction improving commissioning visibility. As a result, consequently 14% CAGR in regulated equity would commensurately enable 16% earnings CAGR over FY19-22E. NTPC is attractively valued at 9.7x FY20E earnings, 1.1x FY20E BV and 5% dividend yield. We maintain Outperformer on the stock with a target price of Rs162.
NTPC owns and operates power generation plants that supply power to state electricity boards throughout India. Co. also offers consultancy services related to infrastructure sector business such as: Fossil fuel based thermal power plants; Combined cycle power plants; Cogeneration plants; Water supply and treatment and Environment engineering and management. Co. runs a Power Management Institute (PMI), at NOIDA. PMI has over the years trained a number of professionals from Co., State Electricity Boards and other power utilities in the country. Also, participants in PMI programmes have come from various South Asian and Middle Eastern countries.
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