NTPC's Q3FY20 results (Outperformer) - Strong capacity addition; reduced under recovery
Q3FY20 result highlights
- Under recovery for NTPC coal based power plants declined from Rs4.5bn at end of Sep 19 to Rs3.8bn at end of Dec 19 on better availability at its power plants with improvement in coal supply through indigenous and imported coal. We estimate a further reduction in under recovery of Rs1bn in January 2020. We expect PAF to improve in Q4FY20 further leading to over recovery resulting in total under recovery to be Rs2bn for FY20E.
- As a result, NTPC’s adjusted EBITDA came in at Rs78bn, + 24% yoy. Other income increased sharply due to higher surcharge on delayed payment of Rs3.2bn (net impact is NIL - offset by rise in interest cost on borrowings to meet rising working capital).
- Adjusted PAT came in at Rs29.6bn (22%yoy; vs. est of Rs29.5bn) for Q3FY20. Profit has been adjusted for prior period sales of Rs4bn and provision of Rs3.4bn towards sharing of gains pertaining to earlier tariff period of FY14-FY19. Consolidated adjusted PAT grew by 30% yoy to Rs34bn led by improvement in PAF of power plants operating under subsidiaries
- Capacity addition has been robust in 9mFY20. YTD Standalone and consolidated commercialisation was 3.0GW and 4.4GW. FY20 commercialisation target is 5.9GW. FY21 commercialisation target is 5.3GW (3.7GW in standalone and 1.6GW in group companies).
- We note that profit has improved under the CERC new regulations for FY20-24E, return on equity is likely to increase by 200bps.
Key positives: Strong capacity addition and commercialisation
Key negatives: Low power demand in Q3; Adverse CERC judgement on sharing of gains for FY14-FY19 tariff period
Impact on financials: Maintain our FY20E/FY21E and introduce our FY22 earnings estimates.
Valuations & view
We believe FY20E 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 6% 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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