NTPC Limited’s standalone adjusted PAT increased by 19 percent year over year to Rs. 4560 crore, which was 5% higher than our forecast of Rs. 3,394 crore. Fixed cost over-recovery of Rs. 238 crore, RoE contribution from project commercialization, and lower tax rate of 15% (against projection of 25%) drove excellent profits growth, which was somewhat offset by a steep drop in late payment penalty revenue to Rs. 161 crore from Rs. 620 crore in Q4FY21.
NTPC raised standalone/consolidated commercial capabilities by 2.9GW/3.8GW y-o-y to 55GW/68GW, while commercial generation/energy sales grew by 3.6 percent/2.4 percent y-o-y to 80BU/74BU.
Outlook and Valuation
Sector view – Regulated tariff model provides earnings visibility; power sector reforms to strengthen companies’ balance sheets
The CERC regulates India’s power industry using an availability-based earnings model (fixed RoE on power producing assets) and hence offers great earnings visibility for power-generation enterprises. Furthermore, with higher coal supplies at thermal power plants, the plant availability factor (PAF) has improved, and we anticipate power providers’ FC under-recoveries to reduce.
Furthermore, the government’s power sector package in the Budget, worth over Rs. 3 lakh crore, would assist power discoms in clearing dues from power generating and transmission corporations. The electricity sector’s receivables would be reduced, and firms’ financial sheets would be strengthened.
Company outlook – Strong commercialisation target to drive 12% CAGR in PAT over FY2021-FY2024E
In the next several years, NTPC plans to add more than 5 GW of new commercial capacity yearly, which we anticipate will result in a 10% /12% CAGR in regulated equity/PAT during FY21-24E. We are bullish about NTPC’s profits growth prospects over the next few years since management has guided for high growth in regulated equity. Furthermore, a decrease in discoms’ outstanding amounts will enhance NTPC’s financial sheet.
Valuation – Maintain Buy on NTPC with and an unchanged PT of Rs. 170
The risk-averse, regulated business model of NTPC gives profits growth visibility/RoE improvement, and RE expansion would promote a progressive re-rating of the stock, since it would alleviate ESG concerns. Additionally, the potential monetization of its RE and power trading companies in the next years might boost shareholder profits even more.
Given the deep discount of 32% to the historical average one-year forward P/BV multiple of 1.5x and a respectable dividend yield of 5%, a valuation of 1x FY24E P/BV seems appealing.
About NTPC Company
With an installed capacity of 68302 MW as of March 31, 2022, NTPC, which was founded in 1975, is India’s biggest power producing corporation. NTPC was responsible for 17 percent of India’s installed power capacity and 23 percent of its generation.
In the following five years, the corporation expects to increase 20 GW of electricity capacity. NTPC also offers consulting services to businesses in the power sector and, via its subsidiary, engages in power trading.
Over the next several years, NTPC is anticipated to commercialise additional capacity of >5 GW yearly, resulting in a double-digit CAGR on its regulated equity base. As a result, we anticipate continued excellent profits growth as NTPC delivers a 15.5 percent return on regulated equity.
Furthermore, the company’s fixed cost under-recoveries are likely to decrease in FY2022, as the PAF of coal-based power plants improves. NTPC has a good dividend yield and is selling at a reasonable price.
NTPC Key positives
- As of March 2022, the standalone regulated equity base has increased by 6.9% year on year to Rs. 70,890 crore.
- Standalone cash flow from operations grew by 31% year on year to Rs. 35,388 crore.
NTPC Key negatives
- Late payment surcharge revenue fell by 74% year on year to Rs. 161 crore.
- Commercial capacity additions guidance – In FY23/FY24, management expects to commercialise 5GW/6GW, compared to 4GW in FY22. In FY23/FY24, the plan is for adding 1.5GW/950MW of renewable energy capacity. The company’s goal of 15 GW of renewable energy capacity by FY25 may be delayed by a year, according to management.
- RE monetization update – The company has created separate subsidiary NTPC Green Energy Limited will transfer all RE assets to it post clarity on taxation. NTPC plans to monetise RE assets through an IPO or induction of strategic investors and eyeing monetization of some assets in FY23.
- RE projects – NTPC has received LoI for development of 10 GW of solar park in Rajasthan. Overall, NTPC has 1.8 GW of operation RE portfolio, 3.4 GW under construction and 2.8GW under tendering. NTPC now expected RE portfolio to expand to 15 GW by FY26 versus earlier guidance of FY25.
- Capex and Receivables – Management guided for a capex of Rs. 22,454 crore for FY21 versus Rs. 21,036 crore in FY22.
- Other updates – 1) Outstanding dues beyond the due date is Rs. 4,274 crore as on March 2022 versus Rs. 5,660 crore as of March 2022, 2) fuel cost under-recoveries at Rs. 453 crore in FY22 versus Rs. 600 crore in FY21, 3) NTPC has inked a pact with Gujarat Gas to blend green hydrogen in PNG network of Gujarat Gas at NTPC Kawas and 4) profit from subsidiaries/JVs stood at Rs. 1947 crore/Rs. 1020 crore in FY22 versus 1738 crore/Rs. 684 crore in FY21.
NTPC Key Risks
Lower-than-expected commercial capacity additions amid delay in projects due to COVID-19 and coal availability shortages could affect earnings. Moreover, any write-off related to dues from discoms could affect valuations.