Emkay Global Financial Services has maintained `Buy` on NTPC with a price target of Rs 199 as against the current market price (CMP) of Rs 172 in its report dated Jan. 31, 2012. The broking house gave the following rationale:
Higher R&M resulted into lower profits:
NTPC`s 3Q12 PAT of Rs 21.3 billion against our estimates of Rs 22.6 billion, lower by 10% y-o-y and 12% QoQ, due to under recovery on water charges and higher maintenance expenses. NTPC has pre-pone the plants maintenance to 3Q12 which resulted into incremental R&M expenses of Rs 1.5 billion. Adjusting for one offs ((adj. for previous yr sales, int. from beneficiaries and prov.), APAT stood at Rs21.6bn. Gross generation during the qtr has increased by 3% y-o-y to 56.4BU driven by 1660MW of commercialized capacity addition since 3Q11. Revenues stood at Rs 153.3 billion, up 14% y-o-y primarily driven by realizations (Rs3.02/unit), up 20% y-o-y. Increase in fuel cost (up 26% y-o-y on per unit basis) has largely contributed to better realizations during the quarter.
Change our assumptions for COD in FY12E and PAF:
The PAF of coal stations remains low at 86.2% (YTD) and 1160MW commercialized YTD in FY12. We believe that PAF is structurally coming down but we do not see it lower than 88%. We reduce our assumptions for PAF (from 90% to 88.5%) and COD from 2820MW to 2320MW in FY12E (though we still believe that FY12 being sunset yr of 80IA, NTPC might surprise positively in COD in 4Q). We cut consolidated earnings estimates to Rs 11.2 a share (-3.4%) and Rs 12.4 a share (-3.9%) for FY12E/FY13E.
Valuations reasonable; maintain Buy:
Though PAF structurally coming down, but do not see it lower than 88% (expect 4Q PAF to be significantly higher at around 94%). Core ROE still remain at 25%. We also highlight that none of the SEBs have delayed payments to NTPC beyond 60days and delays up to 60days is a positive for NTPC (earns late payment surcharge). Maintain Buy on reasonable valuations at 1.8x (prices in negatives - fuel, SEB delays etc) with revised price target of Rs199/Share. Further, scenario of interest rates coming down is a positive for the stock as regulated utilities are quasi bonds.
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