The Q2 results of NTPC were in line with expectations. The company reported a profit of R2,490 crore, which, after adjusting for prior year sales, was up 8.4% y-o-y to Rs 2,400 crore, in line with our estimates and 1% ahead of consensus. Importantly, as expected, PAF (plant availability) improved to 87.5% (from 86% in Q1FY14/ Q2FY13 was 81.3%), which is key driver for earnings.
The company is confident of improving PAF for FY14 as availability at two of its problem stations, Farakka and Kahalgaon, has already improved, while at other plants (like Mauda), where its lower, is likely to improve in H2.
We expect the company to report stable earnings growth at 8% CAGR over FY14-16 due to an 8.4-GW capacity additions during FY13-15 (23%), together with a marginal improvement in PAF in FY14 as coal supply to its stations improve.
The better coal supply is on account of imminent start of production from its captive block, resolution of its issue with CIL and import logistics of coal in place. The stock is attractively priced, trading near its historical low multiples (FY14e PB of 1.4x and PE of 11.2x) and offers 4-5% dividend yield, which is likely to continue. We reiterate our OW rating on the stock; with an unchanged DCF-based target price of R176.
– HSBC
