NTPC had the worst quarter since listing in 2004 with 1QFY11 Rec PAT falling 13.6%YoY (-14% below consensus) led by delayed capex, lower plant availability,
untimely plant shut-downs, 200bps fall in yield on its Rs176bn cash balances and higher O&M costs. Generation was flat despite +4%YoY capacity add on untimely shut-down ahead of common wealth games in 3Q, which could have been taken in the lean season (2Q). Maintain UPF due to - 1) continued delay in capex led by its Russian suppliers (31% of capex) impacting PAT/RoE growth and 2) expensive valuation (P/BV at 2.4x FY11E, highest among the regulated utilities in Asia).
While we wait for further clarity from management on the quantum of impact on 1QFY11PAT due to the above factors, we believe capacity additions will be the key earnings driver for NTPC. We expect capacity addition to improve, as we believe most of the delays are already behind it and NTPC is set to add about 6,000 MW – 20% of the installed capacity – over the next 2 years. We expect NTPC to add about 2,650 MW in FY11E (1,000 MW at Farakka and Korba, which operate on a merchant mechanism), and 3,650 MW in FY12E.
Muted EPS Growth of 10% is expected. Fy 11 11.5 and FY 12 12.9
