{LONGTERMINVESTORS} NTPC – 4QFY16 Result Update - BUY-Fundamentals remain strong; Reiterate BUY

 

(See attached file: NTPC_-_4QFY16_Result_Update_-_310516.pdf)

NTPC – 4QFY16 Result Update - Fundamentals remain strong; Reiterate BUY

In line with our estimate, NTPC's net sales declined 6.2% yoy on the back of lower electricity generation, PLF and fuel costs and reduced variable charges. Despite 14.4% yoy rise in PBT due to improved operating margins, the Company's net profit declined 7.7% yoy to Rs27.1bn in 4QFY16 owing to adjustment of I-T refund in the previous years. Operating parameters of NTPC's power plants remained under pressure with decline in Plant Load Factor (PLF) due to lower system demand and fuel issues. We believe that regulatory overhangs and lower PLF have already been factored in at low valuations of 1.1x FY18E P/BV which makes us fundamentally optimistic. Hence, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs168.

Results Highlights

• Lower PLF, Fuel Cost Drag Net Sales: On account of lower generation, reduction in variable charges – due to rationalization of fuel cost – net sales dipped 6.2% yoy to Rs181bn. Fuel cost (coal) reduced to Rs1.64/unit in 4QFY16 v/s Rs2.04/unit in 4QFY15. Other income dipped 11.5% yoy due to lower cash surplus vis-à-vis earned income, as NTPC issued bonus debenture in 4Q.

• Average per unit Realization & Regulatory Equity: The average per unit realization stood at Rs3.18 in FY16, while regulatory equity as of March 31, 2016 was Rs414.2bn v/s Rs369.1bn as of March 31, 2015. On standalone basis, NTPC capitalized Rs116.2bn in FY16 due to commencement of commercial operation at Barh Super unit.

• Higher PBT on Better Operating Margins: On account of lower fuel cost, NTPC reported 569bps higher operating margins (30.1% yoy) which led to higher PBT (+14.4% yoy) to Rs54.5bn. PAT declined 7.7% yoy to Rs27.1bn in 4QFY16, as PAT for 4QFY15 included I-T refund.

Outlook and Valuation

Despite the instances of coal shortage in few plants, we continue to believe NTPC as one of the best placed companies in terms of fuel security, as almost all its capacity off-take will continue to be through long-term PPAs. On the back of capacity addition track, robust balance sheet and strong operational cash-flows, we continue to remain bullish, and reiterate our BUY recommendation on the stock with a a downwardly revised Target Price of Rs168 (Rs172 earlier).

 

 

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