India Equity Research

October, 2012

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Fortune F t

NTPC
McapRs1393bn|CMP:Rs168|TP:Rs170

Ravikiran Surana [email protected] +91 22 4300 3825

Fortune Group

India Equity Research

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CMP: Rs168 Sector outlook: Neutral

Target price: Rs170

NTPC

Hold
(Rs mn) Net sales Growth (%) EBITDA EBITDA (%) PAT Growth (%) Diluted EPS Valuation /Ratios ( ) (x) P/E P/B EV/EBITDA EV/Sales RoE (%) RoCE (%)

Power utilities

Increase in pace of capacity addition: During the 11th Five-Year Plan (FY08-12), NTPC (standalone) added 5.6GW of commercial capacity, while the NTPC group added 8.1GW. This translates into a growth rate of ~4%. Based on CEAs project monitoring, we expect NTPC to add 13.6GW at the standalone level and 17.7GW at group level. The pace of commercial capacity addition is set to almost double (8% CAGR over FY12-17E). Higher capacity addition would improve overall return ratios with a shift from low yielding assets to those yielding regulated returns of 15.5% Regulated equity to grow to 1.8x of FY12-end regulated equity in next 5 years: As a result of increase pace of capacity addition, NTPCs regulated equity is expected to grow to 1.8x that FY12-end in the next 5 years. The addition to regulated equity during the 11 Five-Year Plan was only 1.4x. Accretion to regulated equity, plant availability and efficiency gains would be the key drivers for NTPCs earnings growth. Fuel security better than peers, blending not to exceed 10%: Based on the existing ACQ quantities under FSAs and assuming that 60% of the requirement for incremental generation would be supplied through LoA route, blending of imported coal need not exceed 10% (FY14E). Blending was at 8.4% in FY12. With ~125mt of coal available as ACQ with the trigger level at 90%, higher imports and captive coal blocks (Pakri Barwadih coal mine is expected to start production in FY14), NTPCs PAF may not be affected materially from current levels. Fair value at Rs170/share: We have calculated NTPCs regulated equity invested in projects and valued them at P/B 2.3x Sept 14E (and not on book net worth, as RoE on regulated equity is much higher at 21-22%). Secondly, equity invested in CWIP is valued at only 0.5x as the project starts earning RoE only on becoming operational Thus equity locked in CWIP is not earning any return operational. Thus, return.

Key financials (Y/E March) Standalone FY13E 709,257 709 257 15.8 147,733 22.2 89,508 8.6 10.0 FY14E 788,352 788 352 11.2 161,510 20.8 92,637 3.5 10.9 FY15E 906,332 906 332 15.0 179,694 20.5 96,848 4.5 11.2

FY13E 15.6 1.8 12.4 2.6 11.8 7.6

FY14E 15.0 1.7 11.7 2.4 11.4 7.3

FY15E 14.4 1.6 10.7 2.1 11.2 7.3

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India Equity Research

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Capacity addition to accelerate

Source: CEA, Company, Fortune Research

Source: CEA, Company, Fortune Research

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Valuation
Valuation multiple Book B k value of operating assets l f ti t CWIP 8.5% tax free bonds Cash 2.3x S t14E I 2 3 Sept14E Invested Equity t d E it 0.5x equity portion of Sept14E CWIP 1x FY14E 1x FY14E Value in Rs bn 948 60 24 194 Rs/share 115 7 3 24

Subsidiaries and JVs Generation Other Subsidiaries and JVs Add: value of mining assets Target Price

2.3x P/B FY14E 12x P/E FY14E NPV at CoE of 16%

117 9 50 1,401

14 1 6 170

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NTPC
Profit & Loss Account (Rs mn) Net Sales Raw Materials Employee Cost Other Expenses Total Expenditure EBITDA Other Income Interest Depreciation p PBT Total tax PAT Less: Adjustments Adjusted PAT FY11 549,387 353,738 353 738 27,897 26,460 408,095 141,292 18,058 14,378 24,857 , 119,866 33,407 86,459 88,690 FY12 612,258 416,355 416 355 30,905 28,907 476,167 136,091 26,963 17,116 27,917 , 117,619 31,364 86,255 82,388 FY13E 709,257 496,632 496 632 35,164 29,729 561,524 147,733 24,781 17,434 34,123 , 120,957 31,449 89,508 89,508

Financials
FY14E 788,352 553,135 553 135 40,713 32,994 626,842 161,510 23,652 20,523 41,123 , 123,516 30,879 92,637 92,637 FY15E Balance Sheet 906,332 Equity capital 644,651 644 651 Reserves & Surplus Net worth FY11 82,455 596,468 678,923 431,882 1,126,345 392,360 333,263 775,066 123,448 353,972 36,391 79,243 161,856 76,481 130,729 76,279 26,926 27,524 4,592 1,126,348 26 3 8 FY12 82,455 650,457 732,912 502,672 1,257,600 452,584 400,233 870,862 112,064 411,733 37,029 114,486 161,461 98,758 150,779 95,770 16,816 38,193 13,719 1,257,600 2 600 FY13E 82,455 702,518 784,973 623,184 1,422,460 609,461 403,828 1,013,289 95,840 475,520 67,543 112,495 185,087 110,396 162,189 107,180 16,816 38,193 1,422,460 22 60 FY14E 82,455 756,399 838,854 689,507 FY15E 82,455 807,064 889,518 735,827

47,138 Minority interest 34,849 Total debt 726,639 Total Net block 179,694 Capital WIP 22,295 Total fixed assets 25,953 46,904 , 129,131 Investments Net Working capital Current Assets Inventories Debtors

1,542,664 1,639,648 778,151 340,520 917,457 279,379

1,118,671 1,196,836 79,320 506,689 75,110 126,921 185,562 119,096 162,017 107,008 16,816 38,193 62,800 546,157 86,198 146,989 202,146 110,824 166,144 111,135 16,816 38,193 -

32,283 Cash & bank 96,848 Other Current Assets Current Liabilities & Provisions P i i Creditors

96,848 Other liabilities Provisions Miscellaneous Exp Total l

1,542,664 1,639,648 2 66 639 6 8

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NTPC
Cashflow Statement (Rs mn) PAT Add: Depreciation Add: Interest expense Less: Other income Change in working capital Others Cash flow from operations Change in fixed assets Change in investments Other income Others Cash flow from investing activities Change in debt Dividend & dividend tax Change in equity & share premium Interest paid Other Adjustments Cash flow from financing activities Change in cash & cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents FY11 86,459 24,857 14,378 (18,058) (8,677) 98,959 , (131,267) 24,623 18,058 (88,585) 53,912 (36,480) (0) (14,378) 3,054 12,689 144,595 161,856 161 856 FY12 86,255 27,917 17,116 (26,963) (31,630) 72,696 , (123,713) 11,383 26,963 (85,367) 70,789 (38,261) (17,116) 15,412 (6,387) 161,856 161,461 161 461 FY13E 89,508 34,123 17,434 (24,781) (36,464) 79,820 , (176,550) 16,225 24,781 FY14E 92,637 41,123 20,523 (23,652) (30,866) 99,765 , (146,506) 16,520 23,652 -

Financials
FY15E 96,848 46,904 25,953 (22,295) (18,757) 128,654 , (125,068) 16,520 22,295 (86,253) 46,320 (46,184) (25,953) (25,817) 16,584 185,562 202,146 202 146 Ratios % of net sales Raw material costs Employee costs Total expenses EBIDTA PAT Asset based ratios (%) ROCE ROE Turnover ratios (days) Debtor days Inventory days Creditors days Working capital days Growth ratios (%) Net Sales EBITDA EPS CEPS Per share (Rs) EPS CEPS BV DPS Valuations (x) P/E P/CEPS P/BV Yield (%) EV/EBITDA EV/sales Solvency ratios Current ratio Quick ratio D/E ratio Interest coverage ratio 10.8 13.5 82.3 3.8 17.9 14.3 2.3 2.0 13.2 3.4 2.7 1.2 0.6 6.7 10.0 13.8 88.9 4.0 17.7 12.8 2.0 2.3 13.2 2.9 2.7 1.1 0.7 5.8 10.9 15.0 95.2 3.9 15.6 11.3 1.8 2.3 12.4 2.6 2.9 1.1 0.8 5.9 11.2 16.2 101.7 4.0 15.0 10.4 1.7 2.4 11.7 2.4 3.1 1.1 0.8 5.3 11.7 17.4 107.9 4.8 14.4 9.7 1.6 2.8 10.7 2.1 3.3 1.2 0.8 4.5 FY11 64.4 5.1 74.3 25.7 15.7 9.0 13.3 48.2 23.2 68.2 140.8 18.5 13.9 5.3 (1.7) (1 7) FY12 68.0 5.0 77.8 22.2 14.1 8.3 12.2 57.3 21.9 75.4 144.3 11.4 (3.7) (7.1) 2.6 26 FY13E 70.0 5.0 79.2 20.8 12.6 7.6 11.8 58.0 26.9 74.6 147.8 15.8 8.6 8.6 8.3 83 FY14E 70.2 5.2 79.5 20.5 11.8 7.3 11.4 55.0 33.0 70.7 152.3 11.2 9.3 3.5 8.2 82 FY15E 71.1 5.2 80.2 19.8 10.7 7.3 11.2 54.8 32.5 61.8 145.9 15.0 11.3 4.5 7.5 75

(135,544) (106,334) 120,512 (37,447) (17,434) 65,631 23,626 161,461 185,087 185 087 66,323 (38,756) (20,523) 7,044 476 185,087 185,562 185 562

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Investment Ratings (Returns) Buy (>10%) Hold (-10 to 10%) Sell (<-10%)

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