NTPC's Q2FY20 results (Outperformer) - A good quarter; Rising receivables a concern
Q2FY20 result highlights
- PAF for H1FY20 was 87.5% (+225bps yoy). Notably, the PAF for all the newly commissioned power plants has improved significantly. As a result, under recovery has reduced from Rs8.5bn in H1FY19 to Rs4.5bn in H1Y20. The under recovery is primarily on account of Talcher (3.5GW) plant, which has been facing coal shortage issues due to strikes. We expect PAF to improve in H2FY20 leading to over recovery resulting in total under recovery to be Rs2bn for FY20E.
- Under the CERC new regulations for FY20-24E, return on equity is likely to increase by 200bps led by allowance of 85Kcal for GCV of coal from unloading point to firing point. We believe the contribution of new norms can be seen in Q2FY20 results estimated at +ve Rs3bn
- As a result, NTPC’s adjusted EBITDA came in at Rs71bn, + 18% yoy. Other income increased sharply due to higher surcharge on delayed payment of Rs6.6bn (net impact of Rs3.5bn - offset by rise in interest cost on borrowings to meet rising working capital). Adjusted PAT came in at Rs32.1bn (31%yoy; vs. est of Rs26bn) for Q2FY20. Consolidated adjusted PAT grew by 30% yoy to Rs34bn led by improvement in PAF of power plants operating under subsidiaries.
- Regulated equity grew by mere 4% yoy due to reduction of Rs28bn related to old power plants. YTD, NTPC commercialised 3.6GW (2.3GW – standalone; 1.3GW - JV). Post H1 FY20, 3 new units of 2GW has been commercialised. Full year commissioning target is 5.7GW.
Key positives: Rise in profit led by new CERC regulations
Key negatives: Sharp rise in receivables from Rs84bn to Rs190bn at end of Sep -19; higher under recovery; Low power demand in Q2
Impact on financials: Reduce our FY20E/FY21E estimates by 3%/2% on higher under recovery
Valuations & view
We believe FY20 earnings will be driven by low 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, 14% CAGR in regulated equity will commensurately enable 14% earnings CAGR over FY19-22E. NTPC is attractively valued at 9.5x FY20E earnings, 1.0x FY20E BV and 5% dividend yield. We maintain Outperformer on the stock with TP 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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