For 2QFY2016, NTPC’s net sales increased by 6.9% yoy to Rs17,723cr (2.4%
below our estimate; and as against Rs16,582cr in the corresponding quarter of
last year) led by a 6% yoy increase in coal PLF. Coal PLF improved 407bp to
77.3% as against 73.2% last year. Gas PLF however continued to fall, coming in
at 25.7% as against 33.4% last year. PAF remained stable at 88.1%/97.6% for
coal and gas respectively.
Higher than expected operating expenses resulted in the EBITDA coming in 5.5%
below our estimate, at Rs4,031cr. The EBITDA however increased 24% yoy
resulting in a 315bp improvement in margin. While depreciation and interest
expenses were in line with expectations, higher tax refunds boosted net profit,
which came in 9.6% ahead of our expectation at Rs2,898cr.
Strong capacity addition to drive regulated equity: NTPC’s current capacity stands
at 45,048MW and the company plans to add ~23,500MW by FY2019. The
company will commission 7,500MW by FY2017, ~8,050MW in FY2018 and
~8,200MW in FY2019. Led by the strong capex, the Management expects to see
a 45% jump in regulated equity by FY2018 and a 75% increase by FY2019.
Outlook and valuation: We like NTPC for the growth offered by its regulated
equity model, huge capacity addition plans and expected improvement in
demand for power in the country. At the current market price of Rs133, the stock
trades at a P/BV of 1.27x and 1.19x its FY2016E and FY2017E BV/share of Rs105
and Rs112), respectively. We remain positive on the stock with a target price of
Rs157, based on ~1.4x FY2017E BV, implying an 18% upside in the stock price
from the current levels. We retain our Buy rating on the stock.

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