With growth prospects improving, more steam left in NTPC stock

The power generator's growth prospects are improving and capacity expansions provide medium-term visibility

NTPC, India’s premier power generator, had a strong fourth quarter.  Revenues from operations fell 0.9 per cent to Rs 30,102 crore from Rs 30,390 crore a year ago. But PAT surged to Rs 4,649 crore from Rs 1,630 crore. This was due to a tax refund of Rs 968 crore versus tax paid of Rs 4,958 crore YoY.

Consolidated revenue from operations in FY21 was up 1.8 per cent YoY to Rs 1,11,531 crore from Rs 1,09,464 crore. PAT for the FY21 was up 25.8 per cent to Rs 14,969 crore versus Rs 11,902 crore. Tax paid declined 74 per cent to Rs 2,420 crore from Rs 9,347 crore in the previous fiscal. Depreciation and amortisation rose to Rs 12,450 crore from Rs 10,356 crore YoY.

Among other ratios, FY21 EPS almost doubled to Rs 12.93 from Rs 6.8 a year ago –a buyback slightly reduced the equity base. The debt:equity ratio was stable at 1.55 while the debt service cover rose slightly to 2x from 1.97x.

The cash flow statement indicates NTPC invested Rs 23,312 crore in new plants and other assets in FY21 compared to the previous fiscal when it invested Rs 18,230 crore in such assets and also Rs 11,500 crore in acquisition of NEEPCO and THDCIL. 

Unit power sales rose 4.8 per cent to 251.7 billion units of electricity (290 BU taking subsidiaries into consideration). This is excellent, given that Q1FY21 was almost a washout due to the lockdown and the GDP contracted through the fiscal. Utilisation levels of coal-based plants dropped, with plant load factor (PLF) down to 66 per cent from 68.2 per cent YoY. The average tariff was Rs 3.77/unit, a YoY drop of 3.3 per cent. Payment was eased by the bailout of discoms which enabled faster payment of dues. Receivables dropped by Rs 1,400 crore as a result.

The total installed capacity is now 65,825 MW and it intends to expand this to 1,30,000 MW by 2032 with 30 per cent of the total being non-thermal. This breaks up as 32,000 MW renewables, 5,000 MW hydro, and another 2,000 MW nuclear. The action plan involves capital expenditure of over Rs 1 trillion for 2019-2024.

The renewables target has been almost doubled, to 60 GW by 2032 (earlier: 32GW). This implies adding 5–5.5 GW per annum. NTPC has also ramped up production of captive coal. The estimated financing cost of loans for the solar arm is 6.5 per cent. But while lower financing costs are a plus, competition is also pushing solar tariff bids lower.

Analysts believe there could be 12 per cent growth in regulated return on equity tariffs over the next two fiscals. Coal prices have risen globally in the last five months, and further rise is likely. NTPC has some protection due to its captive production.

Growth should accelerate in this fiscal since GDP is expected to grow after 2020-21 contraction. Discom insolvency has not really been solved as yet though. So, there could be payment issues unless Central support continues. The stock rose around 4 per cent since results were declared, closing at Rs 118. Motilal Oswal Securities has a one-year target of Rs 145.