22 April 2020
Update
| Sector: Utilities
NTPC
BSE SENSEX
31,380
S&P CNX
9,187
CMP: INR98
TP: INR148 (+52%)
Buy
Regulatory structure provides demand insulation
FY20 commercialization at all-time high; sets tone for FY21 earnings
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
NTPC IN
9,895
965.7 / 12.6
146 / 74
15/0/-9
1696
45.9
Amid a nationwide lockdown, India’s power demand has declined 20–25% YoY. However,
regulated utility companies such as NTPC remain well-insulated from these external
conditions. NTPC’s profitability is largely dependent on the ability to operate and declare
availability for its plants. The direct impact of lower power demand / plant utilization is
seen largely in the form of lower PLF incentives (1–2% of earnings).
Given the essential nature of power generation, operations continue at NTPC’s plants.
Coal stocks at power plants have also increased amid a ramp-up in Coal India’s
production and lower power demand, thus reducing risks related to fuel availability.
Moreover, NTPC has commercialized 5.3GW of plants in FY20, the highest ever in a single
fiscal year. While an extended country-wide lockdown could impact upcoming
commercialization plans (FY21 guidance: ~5GW), we note: even if we assume no
incremental commercialization, NTPC should register 6–7% earnings growth in FY21 as
the full benefit of recent additions flows through.
We build in some delays on execution and expect commercialization of 3.6GW in FY21.
The current stock price implies 0.8x FY21 P/BV, which is at a ~40% discount to its long-
term averages. Reiterate our Buy rating on the stock, with TP of INR148/sh.
Y/E Mar
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2020E 2021E 2022E
972.5 1,051.4 1,212.6
303.6
130.3
13.2
13.7
119.0
11.4
6.8
7.4
0.8
341.2
143.6
14.5
10.3
128.0
11.8
7.2
6.7
0.8
387.2
160.0
16.2
11.4
137.2
12.2
7.8
6.0
0.7
5.3GW of capacities commercialized in FY20
NTPC has met its target of 5.3GW of commercialization for FY20, marking the
highest ever commercialization for the company in a single year (Exhibit 1). The
back-ended nature of commercialization (1.7GW over Feb–Mar ’20) also means the
full benefit of these additions would be realized in FY21. We note the recovery of
RoE / fixed charges for these plants depends on NTPC’s ability to operate and
declare availability. Thus, the company is insulated from power demand conditions
(which, given the current scenario, could lead to lower offtake from these plants).
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-19 Sep-19 Dec-18
54.1
30.6
12.8
2.5
54.5
30.8
12.1
2.6
58.9
26.1
11.7
3.3
FII Includes depository receipts
Fixed-charge recoveries expected as coal stocks improve
Stock Performance (1-year)
NTPC
Sensex - Rebased
160
120
80
40
Muted power demand, coupled with production ramp-up at Coal India’s mines, has
resulted in an increase in coal stocks at power plants. This bodes well for NTPC and
reduces fixed-charge under-recoveries (FC u/r). In 1H, availability at NTPC’s plants
was impacted by production issues at Coal India’s mines (Talcher and Korba
coalfields). However, production at these mines has improved, leading to recovery
in coal stocks at these plants (Exhibit 2). For FY20, we expect FC u/r of ~INR2.3b
(v/s INR8b in FY19) (Exhibit 3). As per our interaction with NTPC, given the essential
nature of the power generation business, the movement of coal through rail or
road has not been a challenge. In fact, the current low-demand scenario has
presented the company with the opportunity to cushion itself from any coal-
related supply shocks in the near future.
Aniket Mittal
(aniket.mittal@motilaloswal.com); 912271985585
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.