NTPC: Retain ‘buy’ with a TP of Rs 145; performance is expected lines

NTPC’s overall Q3FY21 performance is in line with our expectations. Highlights: Liquidation of overdue receivables by 15% to Rs157 billion is a key positive; it is likely to reduce to Rs80 billion by March-21. The company continues to progress well on renewable diversification (won 1.2GW in last three months). The CWIP ratio is down to less than 30%, indicating higher profitability going forward.

In our view, the key concern — a deteriorating balance sheet profile — has begun to recede. Furthermore, capacity commercialisation of 11GW over the next two years is likely drive a strong 15% earnings CAGR. The stock’s valuation is compelling at (0.7x P/BV). Maintain ‘buy’ with a TP of Rs 145

NTPC volumes in Q3 increased 7% YoY to 65.4billion units in line with power demand, resulting in overall revenue growth of 4% YoY to Rs 245billion. Lower fuel cost per unit (down 5% YoY) resulted in ebitda grow7h of 6% YoY. The surcharge income continued with no substantial decline in overdue receivables. However, with a lower interest of 1% per month on overdues to be settled under AatmaNirbhar Bharat, other income dipped 44% sequentially to Rs7.6 billion (up 44% YoY). With payments picking up under AatmaNirbhar, surcharge income is expected to taper gradually. Adjusted PAT for Q3 grew 24% YoY to Rs33 billion.

NTPC overdue receivables declined significantly from Rs191 billion to Rs167 billion QoQ. Debtors further declined by Rs10 billion in January. Management expects to close FY21 with Rs80 billion in overdue receivables in the wake of the liquidity scheme for discoms. Importantly, NTPC’s collection efficiency is 100% for the bills raised July-20 onwards. The company recently won 1.2GW of bids and has bid for another 5GW-plus projects. Management indicated that it expects low- to mid-teens RoEs on these renewable projects given favourable cost of debt.

NTPC has seen meaningful shift towards renewables; however, its EPS growth over next two–three-years hinges on commercialisation of thermal capacity, post-which renewables would take centre stage. With a 15% EPS CAGR, 6% dividend yield and 0.7x P/BV valuations on FY22E, the stock offers compelling proposition. Retain ‘buy’.