NTPC India | Power & Utilities

November 6, 2018

NTPC India

BUY

CMP

`154

Safe Play in the Sector

Target Price

`195

Investment Period

12 Months

NTPC India (NTPC) is the largest power utility in the Indian Power sector, having 24%

& 16% market share in the power generation & installed capacity in India

Stock Info

respectively. Private sector is in bad shape on back of poor business economics on

Sector

Power

back of slew of factors; mentioned in the report. On the other hand, NTPC India,

Market Cap (` cr)

1,26,650

which is a competitive player in the industry, supplies all its power under the long

Net Debt (` cr)

1,16,785

term PPA (Power Purchase Agreement); is insulated to Industry dynamics. Over the

Beta

0.6

52 Week High / Low

186/149

next 4 years, company’s CWIP will be capitalized. Thus, CWIP ratio to Net Fixed

Avg. Daily Volume

6,38,812

Assets will come down; due to commercialization of 4-5GW capacity/year; enhancing

Face Value (`)

the regulated ROE of the company and improving growth. Thus, given the pain in the

BSE Sensex

35,012

sector NTPC on back of its positioning and valuations at

1.1xPBV FY2019E

Nifty

10,553

Reuters Code

NTPC.BO

valuations, offers good entry for long-term investors. We recommend a Buy.

Bloomberg Code

NTPC.IN

Electricity Sector; woes still hard to ignore: Though government has allowed private

participation in the sector, private sector has not been able to dent the space; given

Shareholding Pattern (%)

Promoters

61.8

most of them are not profitable and have done heavy bidding for power projects.

MF / Banks / Indian Fls

24.7

While the demand is likely to improve over next 5 years and new supplies are

FII / NRIs / OCBs

11.7

moderating, we still believe that the PLF’s of the industry will rise moderately but with

Indian Public / Others

1.9

a downward risk. Thus, we believe that while possibly the major negativity could be

behind us, it is unlikely that the industry will be out of woods soon.

Abs.(%)

3m 1yr

3yr

Sensex

(7.7)

4.1

31.6

NTPC safe haven to take exposure; given its competitive advantages: Unlike its

NTPC

(3.7)

(14.9)

15.7

private players, NTPC's projects operate under the regulated ROE model.CERC

regulations ensure that power generators enjoy a fixed return of 15.5%, under the

regulated ROE model. Along with this NTPC is a cost competitive power producer; on

back of AFS (Assured Fuel Supply) & strong backing of government; which keeps its

cash flow healthy. NTPC a safe player in the Industry struggling with poor business

economics. In addition, valuations at 1.1xBV FY2019E, factor in a low ROE of 14.0%,

with no growth of current assets. Even at conservative valuations, the stock will

3-Year Daily Price Chart

provide an upside of 27%.

200

Key financials (Consolidated)

180

Y/E March (` cr)

FY2017

FY2018

FY2019E

FY2020E

160

Net sales

82,042

88,083

96,011

107,532

140

% chg

11.7

7.4

9.0

12.0

10,749

10,526

10,938

12,779

120

Net profit

% chg.

(1.4)

(2.1)

3.9

16.8

100

EBITDA margin (%)

26.2

25.4

25.5

25.7

EPS (`)

13.0

12.8

13.5

15.9

P/E (x)

11.8

12.0

11.6

9.9

Source: Company, Angel Research

P/BV (x)

1.3

1.2

1.1

1.0

RoE (%)

11.3

10.5

10.2

11.0

Sarabjit Kour Nangra

RoCE (%)

7.4

6.5

6.6

7.2

+91 22 3935 7800 Ext: 6806

EV/Sales (x)

3.0

2.9

2.8

2.3

Sarabjit @angelbroking.com

EV/EBITDA (x)

11.3

11.5

10.9

9.1

Source: Company, Angel Research; Note: CMP as of November 5, 2018

Please refer to important disclosures at the end of this report

NTPC India | Power & Utilities

Power generation sector; worst behind but woes hard to ignore

Indian Power Sector, which has been one of the heavily regulated sector has witness a

slew of reforms; the prominent being Electricity Act 2003; which enabled National

Electricity Policy, Rural Electrification, Open access in transmission, phased open access

in distribution, mandatory SERCs, license free generation and distribution, power

trading, mandatory metering and stringent penalties for theft of electricity.

Private Sector’s aggressive expansion plans take toll on the PLF’s

India has been a power deficit economy for long; which lead government take many

power reforms, including competitive bidding in power sector in 2006. In FY2008, the

power deficit rose to a 10-year high of 11%; aiding merchant power prices hit the roof,

rising upwards of Rs10/unit (V/s power tariff of Rs3-4/unit of coal based plants). Since

then the private sector took up projects aggressively, hoping to benefit from the trend.

In terms of installed generation capacity private sector share, which was at (14GW of

installed capacity with a market share of 11.4% in FY2006), has increased to (143GW

of installed capacity with market share of 43.6% in FY2017). Overall, installed

generation capacities grew at a CAGR of 9.2% during 2006-17; with private sector

capacities addition happening at a CAGR of 23.4%( conventional capacity addition

happened at a CAGR of 16.1%) during the same period. However, there counterparts

like Central & State Power generation companies witnessed capacity additions at CAGR

of 6.6% and 3.6% respectively.

On the demand side, during the same time, the demand has been at 1,212BU in

FY2018, registering a CAGR of ~4.6% during the period (FY2006-2018). Over the last

5 years, the power demand has grown at a CAGR of ~4.0% between fiscals 2013 and

2018 while the conventional installed generation capacities grew at a CAGR of 9.0%.

As a result, as an indicative average plant load factors (PLFs) of coal plants (~72% of

fuel of power plants) declined from 70% in FY2013 to 61% in FY2018. In particular,

the PLFs of the private sector generators were even lower at 55% in FY2018; similar to

state sector utilities. Central sector; on the other hand which sells power under long

term PPA had PLF’s of 72%. during the period.

Also at current Industry PLF’s, the power deficit of the industry came down to almost

0.7%, while peak demand deficit is around 2.0% in FY2017-18. This indicates that

current operative capacities (at current PLF) in the Industry are sufficient to address the

power demand without expansion.

PLF’s unlikely to see major improvement in near term

Demand drivers in place; expect a pick-up

The demand potential of power is still intact as power consumption per capita in the

most efficient power, country Hong Kong is around 6,073KWh V/s 1,205KWh in India.

The world average of per capita power consumption stood at 3,126 KWh In addition,

Indian government has put up the overall Indian per capita demand to increase to

3,000kwH by FY2040; expected CAGR of 4.6%. As per Crisil, India’s per capita

electricity, consumption will rise gradually at 5.0% CAGR between FY2019-2023. This

will be driven by improvement in access to electricity in terms of quality and reliability

because of intensive rural electrification and reduction in cost of power supply, resulting

November 6, 2018

NTPC India | Power & Utilities

in realization of latent demand from the residential segment. In terms of units, the

power consumption will grow a CAGR of 6.5-6.7% during FY2019-2023.

But capex plans still alive; at 35GW (excl. renewables) for FY2019-23

While there are 50GW (excluding renewables) worth of power projects on paper for

next five years, it is unlikely that all will see the light; mainly given the constraints in the

Industry discussed below. As per Crisil, capacity additions in power generation are

expected to slow down to 35 GW (excluding renewables) between fiscals 2019 to 2023

as compared to 88 GW over the past five years. Almost ~65% capacity additions is

expected to be by the Central government sector having power purchase agreements

and fuel supply arrangements already in place. NTPC will dominate the capacity

additions backed by strong execution skills, sound financial strength as well as assured

power off-take by PPA holder discoms which insulates it from any downward risk

for upcoming capacities.

Crisil expects ~85% of the total 35 GW capacity additions between fiscals 2019 and

2023 to be coal-based, led by a large number of planned projects and the fact that

coal continues to remain the most widely available and cheapest source of fuel. On the

other hand, there will not be any significant gas-based capacity additions over the next

five years because of severe constraints in domestic gas availability. In addition,

hydropower capacity additions are estimated at only about 3.2 GW because of long

gestation period and geological risks in these projects.

Main reasons for tempered capex plans are as follows:

Lack of fresh power purchase agreements

Fresh power purchase agreement (PPA) announcements by distribution companies

(discoms) have witnessed a sharp decline owing to fall in deficit levels and their poor

financial health. Between fiscals 2013 and 2018, only five discoms have conducted

case-I bids aggregating to ~9 GW to enter into new long-term PPAs. These states

include Delhi, Uttar Pradesh, Kerala, Andhra Pradesh and Telangana. In fact, owing to

lower--than-expected growth in power demand and availability of cheaper power in the

short-term market, Uttar Pradesh cancelled the 3.8 GW quantum of bids in May 2017.

This implies that new PPAs would be difficult unless demand picks up sharply.

No Central and state players participated in the competitive-bidding process so far, as

they had been exempt from the process for a period of five years until January 2011.

Moreover, during this period, they entered into MoUs for several projects under the

fixed RoE model. For instance, NTPC has contracted about 60GW of capacities under

the MoU route; thus restricting any major incentive for new capex.

Private sector power generation segment is under financial stress….

Large capacity additions by the private sector (~80 GW of conventional source-based

plants between fiscals

2009 and

2018) without adequate off-take and fuel

arrangement have put pressure on the financials of generation companies.

The gravity of the situation can be gauged by a report of Parliamentary Standing

Committee on Energy tabled in Parliament in September’2018. According to the report,

Independent power producers (IPP) have been facing turbulent times. Most of the power

assets are under financial stress because of one or more reasons in varying proportions

November 6, 2018

NTPC India | Power & Utilities

a) lower supply of cheap domestic coal b) low demand for power than expected c)

delayed payments by distribution companies (DISCOM) d) inability of promoters to

infuse equity on account of financial stress e) aggressive tariffs bid under PPAs f)

aggressive bidding for coal mines and g) delays in disbursement of loans by banks, h)

lack of long term PPA’s (almost 21GW of capacity does not have long term PPA).

Overall, it pegs conventional IPP capacity of 66GW in India’s electricity sector (~40% of

the installed capacity of the IIP and ~70% of the conventional installed capacity of IIP in

FY2018) to be under various degrees of financial stress. These include 54GWof coal-

based power (44 assets), 6GW gas-based power (9 assets) and 4.5GW of hydropower

(13 assets). Crisil, expects, about 21 GW of commissioned capacities are reeling under

stress due to lack of long-term PPAs and weak power off-take. Although the

government has initiated several measures, robust pickup in power demand is crucial

for revival of the stressed generation segment.

… leading to a miniscule capex from private sector

Therefore, with such situation, the private sector expected to slow down their capacity

addition from that planned earlier. The trend has already been visible over the last two

years. The private sector capacity additions declined to 5 GW in fiscal 2017 and further

down to 4 GW in fiscal 2018 compared with average 12 GW being added in the

preceding five years. In addition, none of the private sector players have announced

new generation project over the past three years. Thus, private players would account

for only ~4 GW (12% of capacity additions) between fiscals 2019 and 2023 compared

with 54% share over the past five years.

Fuel another constraint; at least in near term

Coal constitutes a major chunk of the power generation as of now (almost 72% of the

power generation in FY2018 and 90% of the conventional fuel). As per Crisil, as of

September 2017 PPAs worth ~47 GW of the coal-based commissioned capacity were

signed under the competitive-bidding route. Of this, about 16 GW capacity were based

on imported coal, while the rest uses domestic coal. The power plant based on

imported coal; have suffered on back of the change in the Indonesian coal policy. With

most power companies not building in a push through of fuel costs, this has affected

the financial health of many power companies. The scenario, with the supply of the

domestic coal is also not conducive; more so given it is still a government monopoly.

Around 23 GW of projects are expected to be under pressure due to lack of domestic

coal availability.

However, the new coal allocation policy for power sector, 2017-SHAKTI (Scheme for

Harnessing and Allocating Koyala (Coal) Transparently in India) proposes to replace

the old linkage allocation policy with more transparent bidding-based linkages. The

policy would gradually improve domestic coal availability for about 28 GW of existing

and upcoming capacities by fiscal 2023.

Going forward, domestic coal supply to power plants is expected to rise at a CAGR of

~ 6.8% between fiscals 2019 and 2023 backed by higher output from captive mines as

well as growth in supply from CIL and Singareni Collieries Company Ltd (SCCL). Thus,

increased domestic coal production would lead to significant improvement in coal

availability over the next three-five years for power plants.

November 6, 2018

NTPC India | Power & Utilities

Delay in clearance, slow progress on civil works

Delay in land acquisition, rehabilitation and in obtaining environment and forest

clearances are expected to delay commissioning of projects. Some large hydro projects

in Himachal Pradesh, Uttarakhand, Arunachal Pradesh, and Sikkim have been delayed

due to issues such as shortage in workers, agitation by locals at project site, petitions

filed by various stakeholders, or lack of adequate environmental and forest clearances.

Consultation paper on New Tariff policy (FY2019-24)

Central Electricity Regulatory Commission (CERC) has released a consultation paper.

The paper is conceptual in nature and highlights issues and options for various tariff

parameters, inviting comments from industry participants. While it is just a consultation

paper not a regulation, in near term it could remain an overhang over the sectors

investments given that it is already railing under challenging time. The salient points of

the paper:

 It does not intend to increase financial instability for existing and under

construction power assets having financial closure. Hence, RoE revision (if

any) will only be for new plants - those commissioning after 31^stMar’2019.

 The paper indicates that even in a bear case the RoE cut may be limited 1%

(currently 15.5%).

 Evaluating differential RoE for transmission vs. generation assets.

 The paper invites comments on an optional model of implementing a 3-part

tariff for generation projects. Under this model, the tariff will be spilt into a)

fixed charge (interest, depreciation, part of O&M, RoE restricted to risk-free

rate), b) variable charge (rest of RoE and O&M) and c) energy charge for

actual fuel costs based on plant load factor (PLF).

The recovery of fixed charges is linked to target plant availability (PAF),

whereas variable charges are linked to the difference between availability

and dispatch. This implies that i) if PLF= target PAF (currently 80%), then the

plant earns full regulated RoE or ii) if PLF < target PAF, then it will loose RoE

on pro rata basis and iii) if PLF> target PAF then the plant gain on regulated

RoE on pro rata basis. While this is optically positive for high PLF plants, it is

equally negative for low PLF planst and adds much more complexity to state

discom power purchase decision-making.

 The paper also proposes a similar segregation of inter-state transmission

charges (for Power Grid) between i) fixed charge for long-term open access

rights which recover only partial RoE (risk free rate) and ii) a variable charge

to recover the balance RoE which will be linked to actual amount of electricity

flowing through the line.

November 6, 2018

NTPC India | Power & Utilities

Thus worst behind but; woes hard to ignore

Thus, while the demand pick up is a good news for power generation companies, not

all will benefit from the uptick. We believe that the power overs supply situation is

alarming & will take long time to settle. While the only, savior could be the CERC paper

on new Tariff policy (FY2019-24), which proposes plant solder than 25 years, to

checked for retirement. It is not clear as to when and how this policy will shape up.

Coal based thermal power plants more than 25 years old are about 37GW, out of

which around 35.5GW capacity pertain to State / Central sector. If implemented

according to Crisil, it will lead ~10GW old plants to be retired, which will tighten the

market, making the PLF’s rise but slowly. Currently we are not factoring in any

replacement of old plants. There exists possibility of a moderate rise in the PLF’s to a

downward risk over the next 4-5 years, Thus, we believe that while possibly the major

negativity could be behind us, it is unlikely that the industry will be out of woods soon.

NTPC; safe haven in the space

Largest Power Generator in India

NTPC is the largest pan India power generator in the country, having significant market

share in terms of installed capacity as well has in terms of the electricity sold. As on

March’2018, the company had standalone-installed capacity of 46GW and coupled

with JV’s around ~54GW, thus having a market share of 16%. In terms of the electricity

generated, NTPC as on March’2018 sold around 294BU, accounting for almost 23%

market share in the market. Given its size & scope of operations, probably it will be

easier for NTPC to diversify and to spearhead the transition towards increasing non-

fossil fuel capacity. For the same it plans to make renewable fuel resources (solar, wind

& hydro) ~30% of its basket by 2032 (37GW out of the planned 130GW capacity

planned for FY2032).

In addition strong Government support, keeps NTPC’s financials healthy. Key ones

include a) Tri-Partite Agreement (TPAs) of the Union Cabinet and as agreed by the

states and RBI, have been extended for a further period of 10 to 15 years and 26 states

have signed the same. The original TPAs were valid up to October 31, 2016. In terms

of TPAs, any default in payment by the discoms of a state can be recovered directly

from the account of respective state governments with RBI. b) Discoms required to issue

LCs covering 105% of the average monthly billing. This has been 100% realization of

the dues within the stipulated period for the fifteenth year in succession. Also, a strong

government backing aids company to finance its projects at much lower cost than other

players; enhancing its competitive positioning.

Thus, NTPC given its leadership position along with strong government banking can

easily participate in any organic & inorganic opportunities present in the power

industry, given its size & scale of operations.

November 6, 2018

NTPC India | Power & Utilities

Long term PPA’s to insulate the company from industry dynamics

Tariffs for power projects are determined under two mechanisms - the fixed-return

model and the competitive-bidding model. The fixed-return model allows for complete

pass-through of costs (the norms for cost recovery are defined by the Central Electricity

Regulatory Commission (CERC) / respective State Electricity Regulatory Commissions

(SERCs) and also allow a fixed return of 15.5% on equity. On the other hand, under a

competitive bidding model, tariffs over the life of the project are fixed at the time of

entering into a power-purchase agreement. The National Tariff Policy, 2006, mandated

states to procure their power requirements through a competitive-bidding process. Both

central and state utilities were exempt from this rule for five years. However, after

January 2011, even Central and state utilities have been required to participate in the

bidding process to secure power purchase agreements (PPAs) for power off-take.

However, NTPC is yet to take the competitive bidding route for signing its Long term

PPA’s. NTPC's projects operate under the regulated ROE model. CERC regulations

ensure that power generators enjoy a fixed return of 15.5 per cent, under the regulated

ROE model. Moreover, the model also offers incentives to NTPC if operational

efficiencies outperform normative parameters defined by the CERC. Further, the

regulated tariff regime allows NTPC to pass on any increase in costs through higher

tariffs to state distribution utilities.

According to NTPC, it has already signed for almost 35GW in terms of the future

capex, thus it insulates NTPC from any risk arising out of the change in demand

dynamics as 100% of contracted power is guaranteed to be paid for as long as its

plant are available for production ( at PAF of 85%). Thus, while in rising demand

scenario, the company is unlikely to participate in the upswing in the power tariffs, we

believe given the debt driven nature of the industry, along with long gestation period of

the power projects, we believe an assured & long term PPA’s provide better visibility to

the overall IRR of the power projects. NTPC currently has ~44GW of operational

capacity under the regulated model with pipeline capacity of ~35GW plus signed

under the regulated model. This enables it to pass on increase in costs, limiting the

impact on profitability.

Long-term Fuel Security-Assured Fuel Supply & Strong Coal Mining

Portfolio

NTPC through sustained policy advocacy has secured a single ACQ (Annual Contracted

Quantity) for all its coal stations resulting in: Optimum utilization of coal leading to

reduction in ECR, Avoidance of loss of fixed charges due to coal shortage, More

efficient operation of power plants and Higher marginal contribution from operations.

NTPC has signed long term Fuel Supply Agreements (FSAs) with CIL and SCCL for

supply of coal for a period of 20 years for total ACQ (Annual Contracted Quantity) of

~169 MTPA. ACQ has almost taken care of almost more than ~90% of its annual

requirement, with very less dependence on imported coal. During the financial year

2017-18, less than 0.2% of company’s coal consumption was from imported sources.

Apart from this, the company has been allocated 10 coal blocks with estimated

geological reserves of ~7bn tones with estimated mining capacity of 111mn tones per

annum. With these coal blocks, NTPC aspires to become one of the largest captive coal

mining companies in the country. It is envisaged that by 2030, one-third of NTPC’s

requirement would be fulfilled from captive mines.

November 6, 2018

NTPC India | Power & Utilities

To further improve its fuel efficiency, company has almost 67-70% of its coal capacity

linked with the MGR/belt conveyor system to coal mines representing 10 out of 20 of its

coal plants, and for rest of the capacities it has MoU with Railways for ensuring smooth

coal transportation.

Competitive cost power producer in the Industry

NTPC has been running its plant very efficiently as evident by the PLF factor, where

NTPC has over the last two decades have maintained leadership. This is achieved by

company on back of sound maintenance practices & real-time monitoring ensure high

availability and efficient operations along with periodic structured Technical Audits

carried out for all units for identifying and correction of gaps. NTPC has been

consistently maintaining spread of 15%-16% in terms of PLF over the last 2 decades on

All-India level.

NTPC’s Coal stations achieved PLF of 77.9% against All India PLF of 60.7% in FY2018.

Also 6 NTPC coal stations among top 10 stations of the country in terms of PLF in

FY2018. Thus, efficiency of its plant along with economics of scale aids and competitive

factor mentioned above enable company to deliver consistent competitive tariffs. Thus

over an 11 year period, the company’s tariff have risen at a CAGR of 5.8%, while Fixed

component (~35% of the cost) rising 10% while variable (the remaining 65%) rising

around 4.1%. Thus, cost competitiveness will enable company to participate in the

industry in a healthy way. Thus the recent reforms like flexibility to use renewable

power to meet schedule from a thermal station and National Merit Order Operation for

reducing average cost of generation, will benefit NTPC.

Capex to improve the growth prospects

Over the last five years, while the private sector conventional capacity additions was at

a CAGR of 16.0%, NTPC capacity additions happened a CAGR of ~5.3%. In terms of

gross additions, NTPC gross block increased at a CAGR of 3.4% over FY2014-2018

V/s around 15.2% CAGR during FY2014-2009. This is mainly on back of higher CWIP

lying on the books. FY2018 marked the beginning of reversal in CWIP ratio and this

will continue due to commercialization of 4-5 GW capacity/year. Thus, CWIP as

percentage of CWIP plus Net Fixed Assets is expected to come down from 39% in

FY2018 to ~31% in FY2020E. NTPC expects this ratio to come down to almost 22% in

FY2022E. This will increase regulated ROE of the company. Conservatively, we expect

the regulated ROE of the company to grow at CAGR of 14.5% during the next four

years. Overall a capex of ~21GW (14GW standalone) is under construction (annually

adding 4-5GW/ year). For immediate future around 4.7GW & 5.9GW of capacity is

getting added up for FY2019E & FY2020E respectively. Over a long term, the company

has plans to have an installed capacity of 130GW by FY2032, a CAGR of 6.5% during

the period (FY2018-FY2032E).

Valuations, stock factors in a low ROE & growth prospects

Over FY2018-20E, the company will post a CAGR of 10.5% and 11.6% in the sales

and net profit respectively. Apart from the near term triggers, we believe that the long

term NTPC is well placed to tap the opportunity in the Industry; mainly on back of the

competitive advantages it enjoys. In the near term, the only risk to NTPC is the change

in Regulated RoE’s, but CERC consultation paper avocadoes the regulation to be

November 6, 2018

NTPC India | Power & Utilities

effective for assets commericalsing after March’2019. Thus the old assets will continue

to enjoy the 15.5% Regulated ROE’s.

NTPC is largely insulated from the pain associated with the sector makes it an attractive

bet from near term as well as long term. In addition, valuations at 1.1xBV FY2019E,

factor in a low ROE of 14.0%, with no growth of current assets. Thus even on a very

conservative basis, giving 1.5xBV to the regulated book (which implies current assets

will not grow at all); the target price on the stock will work out to be `195; an upside of

27.0%, and valuing the company at 1.3xP/BV on FY2020E BV. 10-year forward P/BV

multiple of the company has been at 1.8x.

Company Background

Government of India (GoI) incorporated NTPC in 1975 as a thermal power generation

company. Power generation and bulk sale of electricity forms NTPC's principal

business, and power is sold through long-term PPAs, mainly signed with state

distribution utilities. The company has installed capacity of 53.2GW (including joint

ventures and subsidiaries) as on March 31, 2018 represented around 16% of India’s

capacity and ~23% of the power produced. Coal-based capacities dominate the fuel

mix of NTPC group- of the total installed capacity around 85% capacity is coal-based,

while the balance is based on gas, hydro and renewable projects. The company has

undertaken backward and forward integration and has entered into related businesses,

such as consultancy, coal mining and power trading.

November 6, 2018

NTPC India | Power & Utilities

Profit & loss statement (Consolidated)

Y/E March (`cr)

FY2016

FY2017

FY2018

FY2019E

FY2020E

Gross sales

73,426

82,042

88,083

96,011

107,532

Net Sales

73,426

82,042

88,083

96,011

107,532

Other operating income

482

1,460

1,788

1,748

Total operating income

73,908

83,502

89,872

97,759

109,281

% chg

(8.7)

13.0

7.6

8.8

11.8

Total Expenditure

55,003

60,528

65,709

71,553

79,927

Net Raw Materials

47,727

52,550

55,691

61,063

67,960

Other Mfg costs

2,231

2,564

2,937

3,231

3,738

Personnel

4,694

5,243

5,758

6,559

7,471

Other

351

171

1,323

700

759

EBITDA

18,424

21,515

22,375

24,458

27,605

% chg

6.3

16.8

4.0

9.3

12.9

(% of Net Sales)

25.1

26.2

25.4

25.5

25.7

Depreciation& Amortization

5,771

6,010

7,460

7,847

8,814

EBIT

12,652

15,505

14,915

16,612

18,791

% chg

7.5

22.5

(3.8)

11.4

13.1

(% of Net Sales)

17.2

18.9

16.9

17.3

17.5

Interest & other Charges

3,366

3,753

4,447

5,610

5,592

Other Income

949

252

(% of PBT)

8.9

1.9

2.0

1.9

1.7

Share in profit of Associates

Recurring PBT

10,717

13,463

12,508

13,002

15,199

% chg

3.8

25.6

(7.1)

3.9

16.9

Extraordinary Expense/(Inc.)

98.8

36.8

(21.0)

PBT (reported)

10,618

13,426

12,529

13,002

15,199

Tax

(162.8)

2,712.4

2,027.8

2,106.2

2,462.2

(% of PBT)

(1.5)

20.2

16.2

PAT (reported)

10,781

10,714

10,502

10,895

12,737

Add: Share of earnings of associate

Less: Minority interest (MI)

(20)

(6)

(42)

Prior period items

PAT after MI (reported)

10,801

10,720

10,544

10,938

12,779

ADJ. PAT

10,901

10,749

10,526

10,938

12,779

% chg

10.5

(1.4)

(2.1)

3.9

16.8

(% of Net Sales)

14.7

13.1

12.0

11.4

11.9

Basic EPS (Rs)

13.2

13.0

12.8

13.3

15.5

% chg

10.5

(1.4)

(2.1)

3.9

16.8

November 6, 2018

NTPC India | Power & Utilities

Balance sheet (Consolidated)

Y/E March (` cr)

FY2016

FY2017

FY2018

FY2019E FY2020E

SOURCES OF FUNDS

Equity Share Capital

8,245

Share Application Money

Reserves & Surplus

83,330

89,593

95,318

103,383

112,416

Shareholders Funds

91,576

97,838

103,563

111,628

120,661

Minority Interest

793

803

948

Long-term provisions

6,302

5,746

5,023

Total Loans

99,424

113,773

130,049

145,117

130,605

Deferred Tax Liability

1,153

1,485

2,408

Total Liabilities

199,248

219,645

241,991

265,124

259,645

APPLICATION OF FUNDS

Gross Block

98,844

117,088

150,153

163,710

188,848

Less: Acc. Depreciation

5,915

12,556

20,615

28,522

36,472

Net Block

92,929

104,532

129,538

135,187

152,376

Capital Work-in-Progress

75,046

86,896

82,093

92,959

66,868

Goodwill

Investments

6,473

7,614

8,876

Long-term loans and adv.

19,617

19,447

14,612

Current Assets

30,599

30,113

39,379

49,671

57,183

Cash

4,938

3,301

4,388

9,762

11,652

Loans & Advances

10,228

11,158

19,909

22,895

26,329

Other

15,433

15,653

15,083

17,014

19,201

Current liabilities

25,417

28,956

32,508

36,181

40,270

Net Current Assets

5,182

1,157

6,871

13,490

16,913

Total Assets

199,248

219,645

241,991

265,124

259,645

November 6, 2018

NTPC India | Power & Utilities

Cash flow statement (Consolidated)

Y/E March (` cr)

FY2016

FY2017

FY2018

FY2019E FY2020E

Profit before tax

10,618

13,426

12,529

13,002

15,199

Depreciation

5,771

6,010

7,460

7,847

8,814

(Inc)/Dec in Working Capital

(442)

2,218

(9,463)

(1,244)

(1,533)

Less: Other income

949

252

Direct taxes paid

163

(2,712)

(2,028)

(2,106)

(2,462)

Cash Flow from Operations

15,161

18,690

8,247

17,246

19,766

(Inc.)/Dec.in Fixed Assets

38,026

(30,094)

(28,263)

(24,422)

952

(Inc.)/Dec. in Investments

4,572

1,141

1,262

Other income

949

252

Cash Flow from Investing

43,546

(28,702)

(26,749)

(24,170)

1,203

Issue of Equity

Inc./(Dec.) in loans

(2,828)

14,350

16,275

15,068

(14,512)

Dividend Paid (Incl. Tax)

(3,232)

(4,611)

(4,939)

(4,479)

(5,233)

Others

(61,960)

(1,364)

8,253

1,710

665

Cash Flow from Financing

(68,020)

8,374

19,589

12,299

(19,080)

Inc./(Dec.) in Cash

(9,313)

(1,637)

1,086

5,375

1,890

Opening Cash balances

14,252

4,938

3,301

4,388

9,762

Closing Cash balances

4,938

3,301

4,388

9,762

11,652

November 6, 2018

NTPC India | Power & Utilities

Key ratios

Y/E March

FY2016

FY2017

FY2018

FY2019E FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

11.6

11.8

12.0

11.6

9.9

P/CEPS

7.6

7.0

6.7

5.9

P/BV

1.4

1.3

1.2

1.1

1.0

Dividend yield (%)

2.2

3.1

3.3

3.0

3.5

EV/Sales

3.1

3.0

2.9

2.8

2.3

EV/EBITDA

12.3

11.3

11.5

10.9

9.1

EV / Total Assets

1.1

1.0

Per Share Data (`)

EPS (Basic)

13.2

13.0

12.8

13.3

15.5

EPS (fully diluted)

13.2

13.0

12.8

13.3

15.5

20.1

20.3

21.8

22.8

26.2

Cash EPS

DPS

3.4

4.8

5.1

4.6

5.4

Book Value

111.1

118.7

125.6

135.4

146.3

Dupont Analysis

EBIT margin

17.2

18.9

16.9

17.3

17.5

Tax retention ratio

101.5

79.8

83.8

Asset turnover (x)

0.4

ROIC (Post-tax)

6.9

6.1

5.6

5.8

6.4

Cost of Debt (Post Tax)

3.4

2.8

3.1

3.4

Leverage (x)

1.1

1.2

1.1

Operating ROE

10.7

9.7

8.6

9.6

Returns (%)

ROCE (Pre-tax)

6.5

7.4

6.5

6.6

7.2

Angel ROIC (Pre-tax)

11.0

12.5

10.5

10.9

ROE

12.6

11.3

10.5

10.2

11.0

Turnover ratios (x)

Asset Turnover (Gross Block)

0.6

0.8

0.7

0.6

Inventory / Sales (days)

Receivables (days)

Payables (days)

(3)

(4)

WC cycle (ex-cash) (days)

Solvency ratios (x)

Net debt to equity

1.0

1.1

1.2

1.0

Net debt to EBITDA

5.1

5.6

5.5

4.3

Interest Coverage (EBIT / Int.)

3.8

4.1

3.4

3.0

3.4

November 6, 2018

NTPC India | Power & Utilities

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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NTPC India

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Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

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Sell (< -15)

November 6, 2018