NTPC – Can Growth Last ?

NTPC reported F2Q09 revenue of Rs94.5 bn (up 27% YoY) and earnings of Rs21 bn (up 10% YoY). Adjusted earnings in F2Q09 were Rs18.3 bn (up 12% YoY). The company commercialized 500 MW of Kahalgaon II during the quarter.

2QFY09 recurring PAT at Rs17.4bn (down 6% YoY) was in line with CIR estimates. Reported PAT was higher at Rs21.1bn (up 13% YoY) led by exceptional items. Earnings are under pressure due to Significant delays in incremental capacity additions and Marginal negative impact (2-3%) of new CERC draft regulations from FY10E onwards.

The Indian regulatory system of cost pass throughs works well and provides a defensive characteristic to NTPC’s financials, quite unlike any other Asian generator. Capex is well funded with low gearing (0.52x), a high cash balance of Rs170bn, strong credit rating and high annual CFO cash Rs135bn over FY09E-12E.

In our view, it is key for the company to ensure timely completion of its projects, as any delays would be negative for the stock. Further, any adverse change in CERC regulations (which are due for revision in March 2009) could affect profitability.

NTPC is expected to Report an EPS of Rs 10.15 for FY09.