MOSL: NTPC (Buy)-FY17 annual report analysis – core PAT flattish-Regulated RoE and WC interest the drivers

​NTPC: FY17 annual report analysis – core PAT flattish; Regulated RoE and WC interest the drivers; Maintain Buy

(NTPC IN, Mkt Cap USD21.9b, CMP INR170, TP INR211, 24% Upside, Buy)

We went through NTPC's FY17 annual report. Our key takeaways:

• ​NTPC's standalone (NTPCsa) reported PAT (excluding impairment of INR7.8b investment in the Ratnagiri JV) declined 5.6% to INR102b in FY17 (Exhibit 1). Reported PAT for base year FY16 was revised upwards by 5.1% to INR108b on migration to Ind-AS (capitalization of major spares, recognition of operating and finance leases). Adjusted PAT was flat at INR96.4b.
  
• NTPCsa core PAT grew 1.1% to INR88.2b in FY17, as per our calculations (Exhibit 2). Regulated RoE (15.5%) and interest on normative working capital were the key drivers. They contributed 75% and 27%, respectively to core PAT. Incentives from higher PLF, and efficiencies in oil consumption contributed just 2-3% to core PAT; this was more than offset by under-recoveries in fuel/O&M cost post change in location of GCV measurements to wagon-top.
  
• Underlying RoE declined 70bp to 15.3%: If we were to calculate core RoE on average regulated equity during the year, the core RoE would have been 20.6%. But, this doesn't portray the right picture, because actual equity investment is higher, as 100% working capital and 30% of CWIP is funded by equity. On making the relevant adjustments for them, we arrive at underlying RoE of 15.3% in FY17 (Exhibit 3), a decline of 70bp from 16% in FY16.