Stock Review: National Thermal Power Corporation (NTPC)

Despite lower plant load factor due to depressed demand (extended monsoon and poor financials of state electricity boards) and flat growth in generation, the operating income of National Thermal Power Corporation (NTPC) rose 19.3 per cent to `13,964 crore in the December quarter. This was aided by an increase in realisation as the company passed on higher fuel costs (up 22 per cent) and got incentives on higher plant availability.

However, operating profit grew at a lower rate of 10.5 per cent to `4,301 crore, though better than estimates. Net profit was flat at `2,371.5 crore due to lower other income (down 20 per cent at 202 crore) and higher interest expenses (up 44 per cent to `493 crore) and taxation (up 34 per cent to `1,039 crore). Adjusted for extraordinary items related to prior-period sales, depreciation write-back and taxation, the net profit grew 11 per cent to `2,319 crore.

NTPC is expected to do well, as around 1,000 Mw capacity has been commissioned in the December quarter. Earnings should get a boost from the approval to sell 15 per cent of its 1,000 Mw (from Korba plus upcoming Farakka plants) on amerchant basis. Though the company is maintaining its capacity addition target for 2010-11 at 3,150 Mw, analysts say only 2,500 Mw will be added.

After January, the power sector has moved to ratebased bidding, but NTPC has already signed cumulative power purchase agreements totalling 1,00,000 Mw, which provides revenue visibility under the regulated model for the next decade. This will also help it achieve the targeted capacity of 75,000 Mw by 2016-17. The company is expected to speed up award of boiler-turbine-generator contracts for commissioning capacities in the 12th Plan. Analysts like the company due to high visibility, relatively less risk to fuel supply and strong balance sheet.

Financial performance is expected to be better than peers due to revenue visibility and fuel security