NTPC: Not charged up enough

Provisional net profit numbers disappointing, stock expensive.

National Thermal Power Corporation (NTPC)’s provisional results for the year to March 2009 are somewhat disappointing with the profit after tax up a shade under 6 per cent at Rs 7,827.4 crore. The Street was expecting a number closer to Rs 8,000 crore. Surprisingly, however, the stock jumped nearly 7 per cent on Wednesday to close at Rs 196.75, possibly because the net profit number included some extraordinary items. Otherwise, the stock has done very little in the recent rally that started from March 9, 2009 and till Wednesday, had gained just under 5 per cent compared with a move of 29 per cent for the Sensex.

With NTPC expected to commission around 3,300 MW in the current year, analysts are now pencilling in consolidated revenues of around Rs 51,000 crore while the consolidated net profit expected to come in is about Rs 8,700 crore. The return on equity (ROE) for the company, in 2009-10, is estimated at about 14-15 per cent, slightly higher than the level estimated for the year gone by.The ROE should ideally have been higher, given that the base ROE has been increased to 15.5 per cent, except for the fact that some of NTPC’s equity capital is being deployed in projects that are under way.

Moreover, the company is also sitting on 8.5 per cent tax-free bonds that were issued some time back to state electricity boards in lieu of receivables. The stock was a good defensive play in a bear market and has performed reasonably well over the past year. However, with investors looking for growth stories now, NTPC is expected to perform in line with the market. At current levels, the stock trades at an EV/ebitda (enterprise value/earnings before interest, tax and depreciation) of close to 13 times, which is somewhat expensive. Also, with the Nifty turning into a free-float market capitalisation index, NTPC’s weightage will fall sharply from about 8 per cent at present.