2QFY2012 Result Update | Power

October 28, 2011

NTPC
Performance Highlights
Y/E March (` cr) Net sales Operating profit OPM (%) Net profit 2QFY2012 15,378 3,239 21.1 2,424 1QFY2012 14,171 2,866 20.2 2,076 % chg qoq 8.5 13.0 8bp 16.8 2QFY2011 12,989 1,549 11.9 2,107 % chg yoy 18.4 109.1 910bp 15.0

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Power 147,263 0.8 209/160 227693 10 17,805 5,202 NTPC.BO NTPC@IN

`179 `201
12 Months

Source: Company, Angel Research

For 2QFY2012, on a standalone basis, NTPC reported a 15.0% yoy increase in its net profit to `2,424cr. However, adjusted PAT (after making adjustments for prior-period items, write-back of provisions, interest on income tax refund and other adjustments) rose by 20.6% yoy to `1,610cr. Overall, bottom-line growth was aided by grossing up of revenue at corporate tax rate in 2QFY2012 (vs. MAT rate in 2QFY2011). Debtors days increased to 69 days at the end of 2QFY2012 (vs. 33 days in 2QFY2011), which is a cause of concern. Management stated that it currently receives only 30-40% of payments on the first day as against 60-70% earlier, and payments are being pushed to the latter portion of the 60-day payment window. However, management reiterated that there has not been any default from SEBs till date. We recommend Accumulate on the stock. Top-line growth at 18.4% yoy: NTPC reported an 18.4% yoy increase in its top line to `15,378cr due to higher tariffs on account of increased fuel costs, grossing up under corporate tax rate and 1,000MW of additional commercial capacity operational during the quarter. Operating profit rose phenomenally by 109.1% yoy to `3,239cr due to low base on account of one-off provision of `1,263cr made on sundry debtors during 2QFY2011. Outlook and valuation: We expect NTPC to register a CAGR of 13.0% and 7.6% in its top line and bottom line over FY2011-13E, respectively. At the CMP of `179, the stock is trading at 1.9x FY2012E and 1.8x FY2013E P/BV. We recommend an Accumulate rating on the stock with a target price of `201.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 84.5 9.9 3.6 2.1

Abs. (%) Sensex NTPC

3m 1.2

1yr (8.5)

3yr 97.7 34.7

(2.2) (10.7)

Key financials (Consolidated)

Y/E March (` cr) Net revenue % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 48,231 9.0 8,838 9.2 27.1 10.7 16.7 2.3 14.2 9.8 3.4 12.5

FY2011 57,418 19.0 9,354 5.8 22.8 11.3 15.7 2.1 14.0 9.1 3.0 13.1

FY2012E 66,446 15.7 10,024 7.2 24.8 12.2 14.7 1.9 13.8 10.4 2.7 10.7

FY2013E 73,342 10.4 10,832 8.1 25.1 13.1 13.6 1.8 13.7 10.3 2.6 10.3

V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com Sourabh Taparia 022-39357800 Ext:6815 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

NTPC | 2QFY2012 Result Update

Exhibit 1: 2QFY2012 performance (Standalone)

Y/E March (` cr) Net Operating Income Fuel Cost (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

2QFY2012 15,378 10,649 69 785 5 705 5 12,139 3,239 21.1 331 658 1,009 3,259 3,259 21 835 25.6 2,424 16 2.9

1QFY2012 14,171 9,750 69 691 5 865 6 11,305 2,866 20.2 374 641 996 2,847 2,847 21 771 15 2,076 18 2.5

% chg 8.5 9.2 13.6 (18.5) 7.4 13.0 84bps (11.5) 2.7 1.3 14.5 14.5 8.2 16.8

2QFY2011 12,989 8,607 66 709 5 2,124 16 11,441 1,549 11.9 399 506 2,386 3,029 3,029 21 922 15 2,107 18 2.6

% chg 18.4 23.7 10.7 (66.8) 6.1 109.1 914bps (17.1) 30.0 (57.7) 7.6 7.6 (9.4) 15.0

1HFY12 29,549 20,399 69 1,475 5 1,569 5 23,444 6,105 20.7 706 1,299 2,006 6,106 6,106 21 1,606 26 4,500 15 5.5

1HFY11 25,934 17,310 67 1,393 5 2,877 11 21,580 4,354 16.8 741 1,189 2,958 5,382 5,382 21 1,433 27 3,949 15 4.8

% chg 13.9 17.8 5.9 (45.5) 8.6 40.2 387bps (4.8) 9.3 (32.2) 13.4 13.4 12.1 13.9

Exhibit 2: 2QFY2012 Actual vs. Angel estimates

(` cr)
Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual
15,378 3,239 21.1 2,424

Estimates
14,733 3,094 21.0 2,151

Variation (%)
4.4 4.7 6bp 12.7

October 28, 2011

NTPC | 2QFY2012 Result Update

Operational highlights
During the quarter, NTPCs generation volume declined by 2.6% yoy to 50.8BU (52.2BU). The companys energy sent out (ESO) fell by 3.8% yoy to 46.9BU (48.8BU). The decline in generation and ESO was on account of backing down by SEBs, grid restriction and higher generation from hydro and nuclear projects. Further, generation loss due to non-availability of coal stood at 1.944BU for the quarter. Coal-based plants posted PLF of 78.3% (82.9%). PLF of gas-based stations fell to 60.8% (68.0%) during the quarter.

Exhibit 3: Operational performance

250 200 150 94 90 86 82 78 74 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

(BU)

100 50 0

Generation
Source: Company, Angel Research

PLF (RHS)

Fuel supply
During 2QFY2012, NTPC received 29.54mn tonnes (mt) of coal, of which 25.67mt (28.8mt in 2QFY2011) was from domestic sources and 3.87mt (2.87mt) was imported. Reduction of ~11% yoy in the receipt of domestic coal was on account of excessive rains and Telengana agitiation. Materialization of coal against actual contracted quantity (ACQ) for 1HFY2012 stood at 91.17% as against 94.49% in 1HFY2011. The company received 12.62mmscmd of gas in 2QFY2012 as against 13.45mmscmd in 2QFY2011.

October 28, 2011

(%)

NTPC | 2QFY2012 Result Update

Capacity addition
NTPC, along with its JVs, currently has 34,854MW capacity, of which 34,354MW of capacity (except for 500MW (Unit-6) at Farraka) is commercially operational. Management expects the Farraka (Unit-6) to be declared commercial by the end of October 2011 or the first half of November 2011. Further, capacity expansion of 14,088MW is under progress. During 1HFY2012, the company added 660MW of capacity at Sipat (Unit 1). Management has indicated that NTPC Group would add 4,320MW of capacity in FY2012. The total capital outlay for NTPC (standalone) and NTPC Group (along with JVs) stands at `26,400cr and `30,844cr, respectively.

Exhibit 4: Capacity addition targeted (FY2012)

Project
Sipat Stage-I Jhajjar Vallur Simhadri, StageII Mouda, Stage-I Total Source: Company, Angel Research

(MW)
1,320 1,000 1,000 500 500 4,320

Conference call Highlights

Unit 2 of 500MW at Jhajjar has been synchronized on October 21 and management anticipates the plant to achieve full load soon. Total generation lost during the quarter on account of grid restriction and backing down by beneficiaries stood at 5.413BU during 2QFY2012. Another 1.944BU of generation was lost on account of non-availability of coal. The company has signed FSAs for the supply of 16mt of coal for three stations located in Ramagundam, Kahalgaon and Farraka. These stations were commissioned before April 1, 2009. Management is confident that the Ministry of Coal will reallocate the five cancelled coal blocks to the company. (NTPC has till date incurred `565cr on the development of these blocks.) Ministry of Coal has given an in-principal approval for allotting five coal blocks for four new stations of NTPC; these are Unchahar (500MW) in Uttar Pradesh, Kudgi (1,600MW) in Karnataka, Bareti (3,960MW) in Madhya Pradesh and Gajmara (1,600MW) in Orissa. Debtor days for 1HFY2012 stood at 69 days as against 33 days in 1HFY2011. Currently, the average payment days are 50-65 days as against 20-35 days earlier. However, management stated that the company is gaining by not offering 2% discount, which it has to offer for payments made within a short time. PAF for the quarter stood at 83.4% (86.5%) and 92.2% (92.0%) for coal and gas-based plants, respectively. Lower PAF (on a yoy basis) for coal-based plants is on account of higher planned outages undertaken by the company during the quarter. However, PAF is expected to improve substantially in FY2012 as most of the planned outages have been undertaken in 2QFY2012.
October 28, 2011

NTPC | 2QFY2012 Result Update

Investment arguments
Capacity addition to drive future growth: Going forward, NTPCs growth is expected to be driven by the huge capacity addition planned by the company. NTPC Group currently has 34,854MW of capacity and 14,088MW of capacity is under construction. The company expects to add 4,320MW capacity in FY2012E and another ~5,000MW is expected to be commissioned in FY2013E. Earnings protected by the regulated return model: NTPC, being a central public utility, is governed by the regulated return model. The CERCs regulations for FY2010-14 provide RoE of 15.5% on regulated equity. As per regulations, fuel costs are a pass-through, which protect the company from cost pressures due to increased fuel costs. NTPC has 85% of its overall output tied up under the long-term PPA route (regulated returns), which ensures power offtake and stable cash flows thereof.

Outlook and valuation

NTPC has signed cumulative PPAs for 1,00,000MW, the payment for which is guaranteed under tripartite agreement till FY2016 and on the basis of first charge thereafter. NTPC is well placed in terms of fuel security due to the preference it gets in domestic coal supply and has the ability to pass through hike in fuel costs. Going ahead, NTPCs growth will depend on the pace of capacity addition. We expect the company to register a CAGR of 13% and 7.6% in its top line and bottom line over FY2011-13E, respectively. At the CMP of `179, the stock is trading at 1.9x FY2012E and 1.8x FY2013E P/BV. We recommend an Accumulate rating on the stock with a target price of `201.

Exhibit 5: Change in estimates

(` cr) Earlier
Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT 63,539 47,728 15,810 3,323 2,437 13,326 3,273 10,058

FY2012 Revised
66,446 49,938 16,508 3,310 2,574 13,282 3,262 10,024

FY2013 Var. (%)

4.6 4.6 4.4 (0.4) 5.6 (0.3) (0.3) (0.3)

Earlier
71,207 53,239 17,968 3,955 2,808 14,481 3,340 11,146

Revised
73,342 54,937 18,405 3,928 2,875 13,981 3,155 10,832

Var. (%)
3.0 3.2 2.4 (0.7) 2.4 (3.4) (5.5) (2.8)

Source: Angel Research

October 28, 2011

NTPC | 2QFY2012 Result Update

Exhibit 6: EPS Angel estimates vs. Bloomberg consensus

Year/(`) FY2012E FY2013E
Source: Bloomberg, Angel Research

Angel Est. 12.2 13.1

Bloomberg Consensus Var. (%) over consensus 12.0 13.0 1.7 1.0

Exhibit 7: Recommendation summary

Company Reco. Buy Buy Acc. CMP (`) 269 82 179 Tgt. price (`) 383 95 201 Upside (%) 42.3 16.4 12.5 FY13E P/BV (x) 0.6 0.8 1.8 FY13E P/E (x) 6.0 7.4 13.6 FY2011-13E EPS CAGR (%) 7.3 0.8 9.2 FY13E RoCE (%) 9.1 11.7 10.3 FY13E RoE (%) 11.1 10.8 13.7

CESC GIPCL NTPC

Source: Angel Research

Exhibit 8: One-year forward P/BV

310 260

(Share Price `)

210 160 110 60 Apr-06 Apr-07 Price Apr-08 1.5X Apr-09 2X Apr-10 2.5X 3X Apr-11

Source: Company, Angel Research

Exhibit 9: Premium/Discount to Sensex P/E

80 60 40

(%)

20 0 (20) (40) Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

Prem/Disc to Sensex

Historic Avg Premium

Source: Company, Angel Research

October 28, 2011

NTPC | 2QFY2012 Result Update

Profit and loss statement (Consolidated)

Y/E March (` cr) Total Operating Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income Share in profit of Associates Recurring PBT Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less Minority Interest PAT After Minority Interest % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
38,635 14.0 27,222 22,219 3,050 1,953 11,413 12.9 29.5 2,206 9,207 14.9 24 1,858 3,002 10,351 10,351 2,881 27.8 7,470 7,470 8.1 19.3 9.1 9.1 8.1 44,245 14.5 33,702 27,347 3,823 2,533 10,544 (7.6) 23.8 2,495 8,049 (12.6) 18 2,144 3,402 9,307 9,307 1,215 13.1 8,092 8,092 8.3 18.3 9.8 9.8 8.3 48,231 9.0 35,156 30,188 2,446 2,523 13,075 24.0 27.1 2,894 10,180 26.5 21 2,078 2,947 11,049 11,049 2,211 20.0 8,838 (0.0) 8,838 9.2 18.3 10.7 10.7 9.2 57,418 19.0 44,302 36,414 4,965 2,922 13,117 0.3 22.8 2,720 10,397 2.1 18 2,493 4,488 12,393 12,393 3,044 24.6 9,348 (5.2) 9,354 5.8 16.3 11.3 11.3 5.8 13,282 3,262 24.6 10,019 (5.2) 10,024 7.2 15.1 12.2 12.2 7.2 66,446 15.7 49,938 42,006 4,549 3,382 16,508 25.9 24.8 3,310 13,198 26.9 20 2,574 2,657 13,282 73,342 10 54,937 46,366 5,022 3,549 18,405 11 25.1 3,928 14,477 10 20 2,875 2,379 13,981 13,981 3,155 23 10,827 (5.2) 10,832 8.1 15 13.1 13.1 8.1

October 28, 2011

NTPC | 2QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Others Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 55,648 27,487 28,161 25,630 13,447 26,346 15,361 5,031 5,954 8,908 17,438 84,675 64,741 29,776 34,966 30,929 1 11,696 33,486 17,250 9,006 7,230 12,137 21,349 71,527 32,723 38,804 37,682 1 11,778 33,215 16,053 6,549 10,614 12,908 20,307 20 79,210 34,346 44,863 44,855 1 8,357 38,045 17,860 7,875 12,311 15,274 22,771 96,400 37,656 58,743 39,665 1 7,357 42,327 18,638 9,113 14,577 15,896 26,431 114,400 41,584 72,815 43,665 1 6,357 42,316 16,094 10,132 16,090 16,549 25,767 148,605 8,246 45,991 54,236 124 30,315 84,675 8,246 51,706 59,951 166 38,823 8,246 55,993 64,239 279 43,844 230 8,246 61,053 69,298 485 50,392 672 8,246 67,403 75,648 485 55,392 672 8,246 74,560 82,806 485 64,642 672 148,605 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

98,940 108,592 120,847 132,197

98,940 108,592 120,847 132,197

October 28, 2011

NTPC | 2QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Chg in WC & other adj. Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008
10,351 2,206 (134) 3,002 2,657 6,764 (9,708) 1,696 3,002 (5,010) 3,295 3,387 (92) 1,662 13,698 15,361

FY2009
9,307 2,495 (2,782) 3,402 2,566 3,052 (11,344) 1,751 3,402 (6,192) 8,508 3,478 5,030 1,890 15,361 17,250

FY2010
11,049 2,894 408 2,947 2,799 8,606 (14,009) (82) 2,947 (11,144) 5,022 3,682 1,340 (1,198) 17,250 16,053

FY2011 FY2012E FY2013E

12,393 2,720 (2,839) 2,590 3,044 6,639 (13,736) 3,420 2,590 (7,726) 6,548 3,654 2,894 1,807 16,053 17,860 13,282 3,310 (2,882) 2,657 3,262 7,789 (12,000) 1,000 2,657 (8,343) 5,000 3,669 1,331 778 17,860 18,638 13,981 3,928 (1,879) 2,379 3,155 10,496 (22,000) 1,000 2,379 (18,621) 9,250 3,669 5,581 (2,543) 18,638 16,094

October 28, 2011

NTPC | 2QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.3 1.3 5.0 0.4 2.0 3.8 0.4 2.1 4.9 0.5 2.5 4.2 0.5 2.2 5.1 0.6 2.6 5.0 0.7 26 22 137 17 0.7 26 29 114 25 0.7 26 41 130 32 0.8 24 49 116 29 0.8 24 50 114 35 0.7 25 51 108 43 11.4 21.5 14.4 8.8 17.1 14.2 9.8 19.3 14.2 9.1 18.5 14.0 10.4 20.0 13.8 10.3 17.8 13.7 23.8 72.2 0.6 10.1 4.7 0.6 13.1 18.2 86.9 0.6 9.3 5.4 0.6 11.7 21.1 80.0 0.6 9.4 4.0 0.7 12.9 18.1 75.4 0.6 8.0 4.0 0.7 10.9 19.9 75.4 0.6 9.2 3.7 0.7 13.2 19.7 77.4 0.6 9.1 3.7 0.8 13.2 9.1 9.1 11.7 4.1 65.8 9.8 9.8 12.8 4.2 72.7 10.7 10.7 14.2 4.5 77.9 11.3 11.3 14.6 4.4 84.0 12.2 12.2 16.2 4.4 91.7 13.1 13.1 17.9 4.4 100.4 19.7 15.2 2.7 2.3 3.9 13.0 1.8 18.2 13.9 2.5 2.4 3.6 14.9 1.6 16.7 12.6 2.3 2.5 3.4 12.5 1.5 15.7 12.2 2.1 2.5 3.0 13.1 1.4 14.7 11.0 1.9 2.5 2.7 10.7 1.3 13.6 10.0 1.8 2.5 2.6 10.3 1.3 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

October 28, 2011

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NTPC | 2QFY2012 Result Update

Research Team Tel: 022 - 3935 7800 DISCLAIMER

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

NTPC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 28, 2011

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