NTPC's Q3FY19 results (Outperformer) - Coal imports to reduce under recovery
Q3FY19 result highlights
- NTPC’s EBITDA was Rs60.1bn and adjusted PAT was Rs21.8bn (flat yoy; vs est of Rs25.7bn) in Q3FY19. PAT has been adjusted for prior period income and expenses. The profit was below estimates on account of higher under recovery of fixed cost versus our expectation. Total under recovery during Q3FY19/9mFY19 is Rs2.8bn/Rs11bn. Note that working capital requirement has in 9mFY19 leading to increase in debt, which has impacted profit adversely by Rs1.7bn/3.6bn in Q3FY19/9mFY19 due to delay in payment by states etc.
- NTPC’s coal-based TPS PAF was 84.3% (-160bps) in Q3FY19/9mFY19. A number of power plants availability has been low on account of shortage of coal leading to under recovery in fixed charges. To meet the coal requirement, NTPC has guided for a 5mt of coal import in FY19 and 12 mt of coal import in FY20E.
- During the quarter, CERC floated draft regulations. While keeping the base ROE at 15.5% and allowance for GCV of 85Kcal/kwh has come as a positive, reduction in equity based for older power plants is negative for the earnings for the company. Regulations are likely to be finalised by middle of March 2019.
Key positives: Guidance of 4GW of commercialisation in Q4FY19;; New CERC draft regulations; guidance to reduce underrecovery in FY19 to Rs7.5bn
Key negatives: Under recovery of Rs11bn in 9mFY19
Impact on financials: Reduce our FY19/FY20E earning by 6%/4% to account for increased under recovery; intro. FY21 earnings of Rs141bn
Valuations & view
NTPC’s strategy to improve coal supply will lead to increase in PAF for its power plants and will address concerns on the company’s earnings growth trajectory. In addition, proposed draft regulation is positive for NTPC with base RoE being maintained at 15.5% and relief on GCV offset partially by reduction in equity base for power plants. Moreover, strong commissioning visibility and consequent 14% CAGR in regulated equity would commensurately enable 14% earnings CAGR over FY18-22E. NTPC is attractively valued at 9.4x FY20E earnings, 1.1x FY19E BV and 4% dividend yield. We maintain Outperformer on the stock with a revised target price of Rs190.
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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