INSTITUTIONAL EQUITY RESEARCH NTPC IN) Worst seems priced inbackoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_NTPC... · INSTITUTIONAL EQUITY RESEARCH ... NTPC (NTPC IN)

INSTITUTIONAL EQUITY RESEARCH

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NTPC (NTPC IN) Worst seems priced in INDIA | UTILITIES | Company Update During the past one month, NTPC’s stock price underperformed 8% relative to index due to concerns about (1) delay in capacity addition, (2) risk to fuel security – 50% of capacity expected to be commissioned in the next five years relies on captive coal mines, which are delayed, and (3) risk of under‐recoveries based on CERC order on calculation of fuel cost. In this note we address these concerns.

Concern 1: Delayed capacity addition – we expect NTPC to add 4.8GW during FY16‐18 NTPC should add 4.8GW capacity in FY16‐17; our estimates are lower than the management’s guidance of 7.5GW and CEA’s estimates of 5.5GW. This should translate into a 13% CAGR in its regulated equity in FY16‐18, which is higher than 6.5% CAGR over FY13‐15. Additionally, NTPC has accounted for 48% of the new power equipment orders in FY12‐15, suggesting that its FY18‐22 regulated equity could grow at 11% CAGR.

Concern 2: Fuel security ‐ policy changes and progress on coal block to aid fuel security A major concern about NTPC is the fuel availability for 11.5GW of capacity – captive mines linked to these plants have been delayed. However, recently the government has introduced the ‘Bridge Linkage’ policy for public sector companies and we expect NTPC to benefit from this change. Under the policy, NTPC will be eligible for coal to operate its plants at a PLF of at least 58% for three years, thus reducing risk of fixed‐cost under‐recovery. Continued growth in coal production by Coal India coupled with low demand for coal from the private sector improves NTPC’s visibility for receiving coal under the new policy. Another positive – our channel checks indicate significant progress in its captive mine at Pakrih Barwadih, with excavation likely to start in 1QFY17 and coal production by 2HFY17.

Concern 3: CERC order on calculation of coal quality – Likely to be a prolonged issue Another overhang on NTPC is the CERC order directing it to calculate fuel cost on ‘as received basis’ against NTPC’s practice of calculating at the secondary crusher stage (refer to chart on page 6). This has increased the risk of fuel under‐recovery due to excess coal consumption led by grade slippage. Our analysis indicates that a 5% grade slippage impacts NTPC’s earnings by 16%. However, we believe the actual impact could be much lower, as in the intervening period, Coal India has started to supply crushed coal along with third‐party sampling, which should reduce instances of grade slippage. We believe that the resolution of this issue could be a prolonged affair due to two issues: (1) grade slippage is a systemic problem and not NTPC’s sole responsibility, and (2) NTPC’s logic on the logistical challenges of calculating coal quality at the wagon unloading point.

NTPC to benefit from demand‐side reforms such as UDAY Recently NTPC’s new capacity (case in point 1320MW Mauda) faced low demand due to the impact of aggressively priced PPAs by the private sector. However, NTPC should be one of the biggest beneficiaries of a revival in SEB demand under the UDAY scheme. The weighted tariffs of NTPC’s under‐construction capacity are likely to be competitive at Rs 3.5‐3.6/ kwh. Thus, we see limited risk of NTPC getting priced‐out of the market – existing private capacity is also likely to be higher and the current issue is a one‐off. We expect PLF for NTPC’s coal capacity to improve to 80% by FY18 from current 78%.

Valuations at historic lows, prices in negatives… NTPC’s current valuations of 1.05x FY18 P/B (below ‐1SD) include concerns (which are being resolved), but exclude the positives of the regulated model that should generate core RoEs of 18‐18.5% (FY16‐18). Hence, we upgrade our rating on NTPC to Buy from Neutral with a DCF‐based target price of Rs 164 (Rs 160 earlier).

Key risks Unfavourable outcome of the CERC case on fuel calculation. Delay in capacity addition beyond our estimates.

28 March 2016

BUY (Upgrade) CMP RS 129 TARGET RS 164(+27%) COMPANY DATA O/S SHARES (MN) : 8245MARKET CAP (RSBN) : 1051MARKET CAP (USDBN) : 15.852 ‐ WK HI/LO (RS) : 160 / 107LIQUIDITY 3M (USDMN) : 10.2PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Dec 15 Sep 15 Jun 14PROMOTERS : 75.0 75.0 75.0FII / NRI : 9.2 9.2 10.0FI / MF : 13.5 13.5 12.7NON PRO : 0.4 0.4 0.3PUBLIC & OTHERS : 2.0 2.0 2.0 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS ‐1.5 ‐6.7 ‐12.4REL TO BSE ‐8.2 ‐4.9 ‐1.8 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16E FY17E FY18ENet Sales 711,714 817,341 892,252EBIDTA 178,632 199,239 228,755Net Profit 85,909 97,023 105,654EPS, Rs 10.4 11.8 12.8PER, x 12.3 10.9 10.0EV/EBIDTA, x 10.0 9.6 8.9P/BV, x 1.2 1.1 1.1ROE, % 11.3 10.7 11.0Debt/Equity (%) 105.3 114.0 121.3

Source: PhillipCapital India Research Est. Hrishikesh Bhagat (+ 9122 6667 9986) [email protected] Jonas Bhutta (+ 9122 6667 9759) [email protected]

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NTPC BSE Sensex


NTPC COMPANY UPDATE

Focus charts and tables NTPC will commission 11GW in FY16‐18… …leading to 13% CAGR in regulated equity

Source: *PhillipCapital India Research Estimates, Source: , PhillipCapital India Research **NTPC

Estimates, # CEA Estimates Visibility improves for captive coal‐based capacity as government allocates Bridge Linkage to these plants Plant Capacity Block Bridge linkage Barh II 1,320 Chhati Bariatu CCL Kudgi I 1,600 Bhalumuda Captive coal block SECL Vindhyachal V 500 Pakrih Barwadih NCL Tanda expansion 1,320 Chhati Bariatu/kerandari NCL Lara 1,600 Talaipalli MCL‐Lakhanpur New Nabinagar 1,980 Bhalumuda Captive coal block * Darlipalli 1,600 Dulanga/Pakrih Barwadih * Gadarwara 1,600 Talaipalli * Total 11,520

Sensitivity analysis to slippage in coal GCV; actual impact could be lower GCV slippage

Normative coal cons.

Coal cons. due to slippage

Incremental coal cons.

Fuel under recovery

Impact on PAT

1% 194 196 2 4,889 3%2% 194 198 4 9,877 6%3% 194 200 6 14,968 9%4% 194 202 8 20,166 13%5% 194 204 10 25,472 16%

Source: Company, PhillipCapital India Research Estimates

,* Bridge linkage to be awarded closer to CoD NTPC will maintain its core ROE despite strict regulation Valuations at 1x P/B FY18 more than price‐in concerns, but ignore positives of robust core RoEs…

Source: PhillipCapital India Research Estimates

44,398 2,208

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NTPC COMPANY UPDATE

Upgrade rating to Buy as key concerns recede In the past year, NTPC’s stock price has corrected 12% (vs. Sensex ‐10%) due to concerns of (1) delay in capacity addition, (2) risk to fuel security as 50% of capacity likely to be added over the next five years relies on captive coal mines, which are delayed, and (3) risk of under‐recoveries based on CERC order on calculation of fuel cost. The current valuation of 1x FY18 P/B more than prices in these concerns. We believe these concerns are receding. We expect: 1) Pace of capacity addition to pick up beyond FY18. 2) We see lower risk of fixed‐cost under‐recovery, as government’s bridge‐linkage policy has

ensured fuel security, despite delay in captive mines. 3) Notwithstanding current low demand, NTPC’s cost of power will remain, competitive

despite higher capital cost. 4) Impact of the CERC order would be far more diluted than what our initial sensitivity analysis

suggests. Consequently, we upgrade our rating on NTPC to Buy from Neutral and marginally raise our DCF based target price to Rs 164 (Rs 160 earlier). Concern 1: Delayed capacity addition – NTPC to add 4.8GW in FY16‐18 We expect NTPC to add 4.8GW capacity in FY16‐17; our estimates are lower than management’s guidance (7.5GW) and CEA’s estimates (5.5GW). This should still translate into a 13% CAGR in its regulated equity in FY16‐18, which is higher than the 6.5% CAGR achieved over FY13‐15. In FY12‐15, equipment tendering was largely driven by NTPC (48% share) due to the private sector’s weak balance sheet; consequently, its share in incremental capacity addition in India is likely to remain high. This will lead to a further 11% CAGR in NTPC’s regulated equity over FY18‐22. We expect NTPC to add 4.8GW capacity in FY16‐17…

Source *PhillipCapital India Research Estimates, **NTPC Estimates, # CEA Estimates

44,398 2,208

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NTPC COMPANY UPDATE

...leading to 13% CAGR in regulated equity in FY16‐18, higher than 6.5% in FY13‐15

Source: PhillipCapital India Research Estimates Our estimates build in a six‐month delay in NTPC’s commissioning targets FY16 (MW) FY17 (MW) FY18 (MW) Kol Dam Unit III 200 Muzaffarpur JV Unit II 195 Barh I‐ Unit 1 660 Kol Dam Unit IIV 200 Nabinagar TPP JV Unit 2 250 Kudgi U3 800 Bongaigaon Unit I 250 Nabinagar JV unit 3 250 Mauda II U2 660 Vindhyachal Stage 5 (500 MW) 500 AP solar 250 Meja JV Unit I 660 Nabinagar TPP JV Unit I 250 Kudgi U2 800 Nabinagar TPP JV Unit 4 250 Kudgi 800 Mauda II U1 660 Bongaigaon Unit 3 250 Singrauli hydro 8 Bongaigaon U2 250 Gadarwara Unit I 800

Unchahar 500 Lara 800 AP solar 750

Total 2,208 2655 6,130


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NTPC COMPANY UPDATE

Concern 2: Fuel security – Policy changes/coal‐block progress to help A major concern about NTPC is the fuel availability for 11.5GW of its capacity, as these plants are linked to captive mines that have been delayed. Thus, there is a risk of the power plants coming up ahead of respective coal mines. However, recently, the government has introduced the ‘Bridge Linkage’ policy for public sector companies and we expect NTPC to benefit from this change. Under the policy, NTPC will be eligible for coal to operate its plants at a PLF of at least 58% for three years, thus reducing risk of fixed‐cost under‐recovery. Continued growth in coal production by Coal India, coupled with low demand for coal from the private sector improves the visibility for NTPC receiving coal under the new policy. 50% of capacity to be added over next five years will be fired by captive mines Plant Capacity Block Bridge linkage Barh II 1,320 Chhati Bariatu CCL Kudgi I 1,600 Bhalumuda Captive coal block SECL Vindhyachal V 500 Pakrih Barwadih NCL Tanda expansion 1,320 Chhati Bariatu/kerandari NCL Lara 1,600 Talaipalli MCL‐Lakhanpur New Nabinagar 1,980 Bhalumuda Captive coal block * Darlipalli 1,600 Dulanga/Pakrih Barwadih * Gadarwara 1,600 Talaipalli * Total 11,520

Source: Company, PhillipCapital India Research Estimates,

*Bridge linkage to be allocated closer to CoD Our channel checks indicate significant progress in captive mines at Pakrih Barwadih, with mines at advanced stages of commencement in FY17; excavation is likely in 1QFY17 and coal production by 2HFY17. NTPC has already acquired 4,000 acres out of the 8000‐acre land, and has begun bush cleaning. Thriveni‐Sainik has been appointed Mine Development Operator (MDO) for this mine. Local participation has reduced agitation to some extent and aided speeding up the mining activity. Also, Chhati Bariatu Mine will appoint MDO in FY17; MDO tenders for other mines (Talaipalli and Dulanga) are under process. Status of captive mines allotted to NTPC

Environmental clearance Forest Clearance MDO Land acquisition notice Pakri Barwadih Received Received Yes Done Chatti‐Bariatu Received Received In process In process Kerandari Received In process In process In process Talapalli Received Received In process In process Dulanga In process In process In process In process



NTPC COMPANY UPDATE

Concern 3: CERC order (on coal quality) likely to be a prolonged issue The dispute: CERC vs. NTPC Another overhang on NTPC is the CERC order directing it to calculate fuel cost on ‘as received basis’ at the unloading point against NTPC’s current practice of calculating it at the secondary‐crusher stage (refer to the chart below). This has increased the risk of fuel under‐recovery due to additional coal consumption led by grade slippage.

Source: Company NTPC’s argument – lack of homogeneous samples and logistical difficulty NTPC maintained that quality measurement at unloading point becomes difficult due to lack of homogeneous samples of coal because of large size and practical impediments (demurrage charge, logistical challenge). The key reason for quality differential is despatch of low‐quality coal by Coal India. Thus, although Coal India bills utilities based on prices for higher GCV coal, utilities actually receive significantly low‐GCV coal, leading to higher consumption of coal by these generators. Our analysis of NTPC’s petition for 2014‐19 indicates significant slippage in GCV “as billed” by Coal India and as GCV “fired” by utilities. Slippages have ranged between 634kcal and 1900kcal. However, this analysis is based on data for January‐March 2014, during which grade slippage issue was at peak, after which multiple measures have been taken to address this issue.

As per CERC , coal sample should be considered at this point

As per NTPC, coal sample should considered at this point for “as received”


NTPC COMPANY UPDATE

GCV slippage claimed by NTPC as per 2014‐19 tariff petition Summary Capacity GCV as billed GCV as fired Deterioration Ramagundam (ST I and II) 2100 4565 3576 (989) Ramahundam (ST III) 500 4385 3357 (1,027) Talcher II (2000MW) 2000 4042 3128 (915) Talcher (460MW) 460 3811 3446 (365) Talcher I (1000MW) 1000 4042 3128 (915) Farakka (III) 500 5054 3438 (1,616) Farakka (I and II) 1600 5054 3438 (1,616) Simhadri II 1000 4732 3778 (953) Simhadri I 1000 4809 3717 (1,091) Kahalgaon I (840) 840 3867 2599 (1,268) Kahalgaon II (1500) 1500 3867 2599 (1,268) Korba I and II 2100 4150 3121 (1,029) Korba III 500 4150 3120 (1,030) Sipat I 1980 4460 3746 (714) Sipat II 1000 4314 3679 (634) Vindhyachal I 1260 4726 3333 (1,393) Vindhyachal II 1000 4726 3333 (1,393) Vindhyachal III 1000 4726 3333 (1,393) Vindhyachal IV 1000 4726 3333 (1,393) Vindhyachal V 500 4651 3355 (1,296) Unchahar III 210 NA 3647Unchahar II 420 NA 3647Unchahar I 420 0 3635Rihand III 1000 4783 3347 (1,436) Rihand II 1000 4782 3266 (1,516) Rihand I 1000 4782 3282 (1,500) Dadri I 840 NA 3795Dadri II 980 NA 3631Singrauli 2000 4659 3336 (1,323) Mauda 1000 5372 3758 (1,614) Tanda(440MW) 440 5379 3479 (1,900) Badarpur 705 NA 3312Barh II 1320 4000 4000 ‐

Source: Company Our take: Our analysis indicates that a 5% grade slippage impacts NTPC’s earnings by 16%, based on assumption of 3500kcal GCV coal requirement of 194mn tonnes for FY17. Sensitivity analysis to slippage in coal GCV; actual impact may be lower GCV slippage

Normative coal cons.

Coal cons. due to slippage

Incremental coal cons.

Fuel under recovery

Impact on PAT

1% 194 196 2 4,889 3% 2% 194 198 4 9,877 6% 3% 194 200 6 14,968 9% 4% 194 202 8 20,166 13% 5% 194 204 10 25,472 16%

Source: PhillipCapital India Research Estimates However, we believe the actual impact could be much lower given that in the intervening period, Coal India has started to supply crushed coal along with third‐party sampling, which should reduce instances of grade slippage. We believe that the resolution of this issue could be a prolonged affair due to two issues (1) grade slippages is a systemic problem and not the sole responsibility of NTPC and (2) NTPC’s argument on the logistical challenges of calculating coal quality at the wagon unloading point. We believe any impact of the CERC order could be retrospective, and is likely to be a one off.


NTPC COMPANY UPDATE

NTPC to benefit from demand‐side reforms such as UDAY We believe NTPC should be one of the biggest beneficiaries of a revival in SEB demand under the UDAY scheme. Currently 17 states have agreed to be part of the scheme, and nine have already signed MoUs. Together, these states account for 68% of demand and 79% of discom debt. NTPC’s weighted tariffs in its under‐construction capacity are likely to be competitive at Rs 3.5‐3.6/ kwh. Thus, we see limited risk of NTPC getting priced out of the market as existing private capacity is also likely to be higher and the current issue is a one off. We expect PLFs for its coal capacity improving to 80% by FY18 from the current 78%. Seventeen states that have signed up for UDAY = 68% of all‐India demand States MoU Demand Haryana 4% Rajasthan 6% Uttar Pradesh 10% Madhya Pradesh 6% Andhra Pradesh 4% Jharkand 1% Punjab 5% J&K 1% HP 1% Uttarakhand 1% Gujarat 9% Chhatisgarh 2% Bihar 2% Odisha 2% Maharashtra 13% Tripura 68% Manipur 4% Total 68%

Source: Pwoer Ministry, CEA In the near‐term environment of low demand, we acknowledge the impact of aggressively priced private PPAs impacting demand at a few of NTPC’s capacities.

Case Study: 1320 MW Mouda (stage 1) Priced out because of higher fuel cost and aggressively priced power of IPPs The utilisation of the 1320 MW Mouda plant (commissioned in FY13 in Maharashtra) faced headwinds of higher fuel cost due to expensive linkage and competitively priced power in Maharashtra. The plant had linkage from MCL, leading to higher logistical costs and consequent higher cost of generation of Rs 4/kwh. Further, competitively priced power – due to aggressive PPA by private companies (Adani Tirora – Rs3.6/kwh, Mundra UMPP‐ Rs 2.26/kwh) coupled with low demand in Maharashtra led to higher back‐down for Mouda. The ministry recently allowed swapping of coal linkage from MCL to SECL and WCL. NTPC expects this will help in cost rationalisation.


NTPC COMPANY UPDATE

Mouda – Gap between PAF and PLF implies higher fuel availability, but plant facing back‐down due to low demand

Source: WSEDCL,CEA

Valuations price in negatives NTPC’s current valuations of 1x FY18 P/B (below ‐1SD) price in the above concerns, which are in the process of being resolved, but ignore the positives of the regulated model that should generate core RoE’s of 18‐18.5% (FY16‐18). Primary valuation methodology: DCF Our DCF‐based methodology makes explicit cash flow assumptions until FY22, and assumes cost of equity of 13.7% with a terminal growth rate of 4%. Discounted‐cash‐flow valuation (Rs mn) FY18e FY19e FY20e FY21e FY22e EBIT 162,824 192,600 228,740 256,426 268,262 NOPAT 128,334 151,726 181,140 203,164 212,357 Depreciation 65,931 75,171 88,122 99,605 106,647 Less: Change in Current assets (57,395) (92,304) (111,698) (85,125) (52,315) Add: Change in Current liabilities (1,869) 40,803 38,164 32,482 16,867 Less: capex (200,000) (200,000) (200,000) (200,000) (200,000) FCFF (65,000) (24,604) (4,272) 50,127 83,556 Change in debt 136,000 140,000 140,000 140,000 140,000 Interest payment (39,876) (50,275) (67,558) (75,058) (76,858) FCFE 31,125 65,121 68,171 115,069 146,698 Discounted cashflow 27,367 50,347 46,342 68,779 77,099

Source: PhillipCapital India Research Estimates Explicit Cashflow 269,934 Terminal Value 824,081 NPV 1,094,015 No of shares 8,245 Core Operation (Rs/share) 133 Cash (Rs/share) 21 Investment (Rs/share) 10 Value(Rs/share) 164

DCF Assumptions Rfr 7.9 Rp 6.0 Beta 1.0 Cost of Equity 13.7 Terminal Growth 4.0


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NTPC COMPANY UPDATE

Sensitivity of target price to cost of equity and terminal growth

Cost of Equity 11 12 13 13.7 15

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1 173 158 146 138 126 2 186 168 154 145 132 3 202 181 164 154 138 4 223 197 176 164 146 5 251 217 191 177 155 6 290 244 211 193 167

Source: PhillipCapital India Research Estimates Secondary valuation argument: Gordon growth We second our valuation argument using the Gordon Growth Model, which gives us a value of Rs 160 for justified price‐to‐book of 1.4x based on core RoE of 18% and growth rate of 4%. We have excluded cash and CWIP from the valuation, thus valuing only operational projects in FY18. Gordon growth RoE 18% growth rate 4.0% Cost of equity 14%

Justified P/B 1.44 Core BV (adjusted for investments) 112 Value of Core business 162

Source: PhillipCapital India Research Estimates Valuations at 1x P/B FY18 more than price in concerns and ignore positives

Source: PhillipCapital India Research Estimates Change in estimate

____New estimate____ _____Old estimate_____ ______Deviation______ FY17E FY18E FY17E FY18E FY17E FY18E

Sales 817,340.6 892,252.3 798,674.0 892,254.0 2.3% 0.0% EBITDA 199,239.1 228,754.8 198,808.0 228,255.0 0.2% 0.2% PAT 97,022.7 105,654.5 97,729.0 106,000.0 ‐0.7% ‐0.3% EPS 11.8 12.8 11.9 12.9 ‐0.7% ‐0.3%


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NTPC COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY15 FY16e FY17e FY18eNet sales 733,607 711,714 817,341 892,252Growth, % 4 ‐3 15 9Total income 733,607 711,714 817,341 892,252Raw material expenses ‐488,452 ‐445,215 ‐524,710 ‐553,985Employee expenses ‐36,698 ‐35,586 ‐42,502 ‐46,397Other Operating expenses ‐49,793 ‐52,281 ‐50,890 ‐63,116EBITDA (Core) 158,664 178,632 199,239 228,755Growth, % (5.6) 12.6 11.5 14.8 Margin, % 21.6 25.1 24.4 25.6 Depreciation ‐49,117 ‐52,701 ‐58,478 ‐65,931EBIT 109,547 125,931 140,761 162,824Growth, % (13.5) 15.0 11.8 15.7 Margin, % 14.9 17.7 17.2 18.2 Interest paid ‐27,436 ‐32,537 ‐39,392 ‐50,592Pre‐tax profit 109,357 109,493 123,298 134,050Tax provided ‐25,348 ‐23,583 ‐26,275 ‐28,395Profit after tax 84,010 85,909 97,023 105,654Net Profit 84,010 85,909 97,023 105,654Growth, % (19.5) 2.3 12.9 8.9 Net Profit (adjusted) 84,010 85,909 97,023 105,654 Unadj. shares (m) 8,245 8,245 8,245 8,245 Wtd avg shares (m) 8,245 8,245 8,245 8,245 Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18eCash & bank 128,788 199,354 198,344 210,230Debtors 76,044 73,774 84,723 94,933Inventory 74,530 74,096 85,093 95,337Loans & advances 179,355 174,002 199,826 227,341Other current assets 68,384 66,343 76,189 85,617Total current assets 527,100 587,569 644,176 713,457Investments 90,321 80,321 70,321 60,321Gross fixed assets 1,284,776 1,417,856 1,581,006 1,800,056Less: Depreciation ‐496,285 ‐548,987 ‐607,464 ‐673,395Add: Capital WIP 564,935 631,855 668,705 649,655Net fixed assets 1,353,426 1,500,724 1,642,246 1,776,316Total assets 1,970,847 2,168,615 2,356,743 2,550,094 Current liabilities 345,218 337,564 335,066 333,197Total current liabilities 345,218 337,564 335,066 333,197Non‐current liabilities 809,056 952,056 1,091,056 1,230,056Total liabilities 1,154,274 1,289,620 1,426,122 1,563,253Paid‐up capital 82,455 82,455 82,455 82,455Reserves & surplus 734,119 796,541 848,167 904,387Shareholders’ equity 816,574 878,995 930,622 986,841Total equity & liabilities 1,970,847 2,168,615 2,356,744 2,550,094 Source: Company, PhillipCapital India Research Estimates

Cash Flow FY15 FY16e FY17e FY18e

Pre‐tax profit 109,357 109,493 123,298 134,050Depreciation 49,117 52,701 58,478 65,931Chg in working capital 82,689 2,442 ‐60,114 ‐59,264Total tax paid ‐28,230 ‐20,583 ‐23,275 ‐25,395Cash flow from operating activities 212,932 144,053 98,387 115,321Capital expenditure ‐232,547 ‐200,000 ‐200,000 ‐200,000Chg in investments 7,257 10,000 10,000 10,000Cash flow from investing activities ‐225,290 ‐190,000 ‐190,000 ‐190,000Free cash flow ‐12,358 ‐45,947 ‐91,613 ‐74,679Debt raised/(repaid) 113,622 140,000 136,000 136,000Dividend (incl. tax) ‐24,113 ‐33,748 ‐45,396 ‐49,435Cash flow from financing activities 89,509 106,252 90,604 86,565Net chg in cash 77,151 60,305 ‐1,010 11,886 Valuation Ratios

FY15 FY16e FY17e FY18ePer Share data EPS (INR) 10.2 10.4 11.8 12.8Growth, % (19.5) 2.3 12.9 8.9Book NAV/share (INR) 99.0 106.6 112.9 119.7FDEPS (INR) 10.2 10.4 11.8 12.8CEPS (INR) 16.1 16.8 18.9 20.8CFPS (INR) 22.5 15.5 9.3 11.3Return ratios Return on assets (%) 5.4 5.2 5.4 5.6Return on equity (%) 12.2 11.3 10.7 11.0Return on capital employed (%) 6.4 6.2 6.3 6.5Turnover ratios Asset turnover (x) 0.5 0.5 0.5 0.5Sales/Total assets (x) 0.4 0.3 0.4 0.4Sales/Net FA (x) 0.6 0.5 0.5 0.5Working capital/Sales (x) 0.1 0.1 0.1 0.2Receivable days 37.8 37.8 37.8 38.8Inventory days 37.1 38.0 38.0 39.0Payable days 162.8 170.4 145.5 134.5Working capital days 26.4 26.0 49.5 69.6Liquidity ratios Current ratio (x) 1.5 1.7 1.9 2.1Quick ratio (x) 1.3 1.5 1.7 1.9Interest cover (x) 4.0 3.9 3.6 3.2Total debt/Equity (%) 96.2 105.3 114.0 121.3Net debt/Equity (%) 80.4 82.6 92.7 100.0Valuation PER (x) 12.6 12.3 10.9 10.0PEG (x) ‐ y‐o‐y growth (0.6) 5.4 0.8 1.1Price/Book (x) 1.3 1.2 1.1 1.1Yield (%) 2.0 2.7 3.7 4.0EV/Net sales (x) 2.3 2.5 2.3 2.3EV/EBITDA (x) 10.8 10.0 9.6 8.9


NTPC COMPANY UPDATE

Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

N (TP 165) N (TP 160)

N (TP 152)

N (TP 160)

100

120

140

160

180

J‐15 F‐15 A‐15 M‐15 J‐15 A‐15 S‐15 N‐15 J‐16 F‐16


NTPC COMPANY UPDATE

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 Raffles City Tower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku

Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318

Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050

The Chicago Board of Trade Building Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 37, 530 Collins Street

Melbourne, Victoria 3000, Australia Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA: PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Infrastructure & IT Services Strategy

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Nitesh Sharma, CFA (9122) 6667 9965 Logistics, Transportation & Midcap Anindya Bhowmik (9122) 6667 9764Agri Inputs Vikram Suryavanshi (9122) 6667 9951 TelecomGauri Anand (9122) 6667 9943 Media Naveen Kulkarni, CFA, FRM (9122) 6667 9947Banking, NBFCs Manoj Behera (9122) 6667 9973 Manoj Behera (9122) 6667 9973Manish Agarwalla (9122) 6667 9962 Metals TechnicalsPradeep Agrawal (9122) 6667 9953 Dhawal Doshi (9122) 6667 9769 Subodh Gupta, CMT (9122) 6667 9762Paresh Jain (9122) 6667 9948 Yash Doshi (9122) 6667 9987 Production ManagerConsumer Midcap Ganesh Deorukhkar (9122) 6667 9966Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Amol Rao (9122) 6667 9952 EditorJubil Jain (9122) 6667 9766 Oil & Gas Roshan Sony 98199 72726Cement Sabri Hazarika (9122) 6667 9756 Sr. Manager – Equities SupportVaibhav Agarwal (9122) 6667 9967 Pharma & Speciality Chem Rosie Ferns (9122) 6667 9971Economics Surya Patra (9122) 6667 9768Anjali Verma (9122) 6667 9969 Mehul Sheth (9122) 6667 9996Engineering, Capital Goods Mid‐Caps & Database ManagerJonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944Hrishikesh Bhagat (9122) 6667 9986Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974 ExecutionAshka Mehta Gulati (9122) 6667 9934 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles


NTPC COMPANY UPDATE

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

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This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of thecompany(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.


NTPC COMPANY UPDATE

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

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For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

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In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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