NTPC: Current attraction

Major capacity additions in the 11th and 12th Plan will improve NTPC's earnings visibility

The country's largest power generator and the fourth largest company by market capitalisation, NTPC's financial performance in FY07 according to provisional figures were in line with analysts' expectations.

Net sales rose 17.2 per cent to Rs 30,638.7 crore, while profit after tax grew at a lower rate of 15.6 per cent to Rs 6,726.4 crore. Though details on expenditure and per unit realisations are not available, the company had been adversely affected by the high cost of imported coal till the previous quarter.

Its plant load factor (PLF) increased by 189 basis points y-o-y to 89.4 per cent with seven coal-based plants touching over 90 per cent PLF, which is the key driver for last year's performance along with a capacity increase of 3155 mw y-o-y to 27,404 mw, including acquisitions and joint ventures.

NTPC generated 188.67 billion units, which is an increase of 10.4 per cent and achieved 100 per cent billing for the fourth year in succession.

However, its performance in Q4 FY07 was a little subdued as net profit inched up by just 1.9 per cent to Rs 1596.4 crore, though growth in net sales was robust at 16.9 per cent at Rs 8524.5 crore.

Considering its ambitious capacity addition programme of about 22,000 MW during the Eleventh Plan and 25,000 MW during the Twelfth Plan, analysts are optimistic about the company's earnings visibility.

It is also setting up three hydroelectric power plants with an aggregate capacity of 1920 mw, and is also entering nuclear power, power trading, coal mining and forward integration into distribution business. It will increase capacity by 3,160 mw this financial year.

On Thursday, the NTPC stock touched its all-time high of Rs 163, but declined 1.37 per cent over the previous trading session to closing at Rs 158.75. The stock has been an outperformer in the past six months-it's up 22 per cent compared with the Sensex gains of 5.3 per cent.

Analysts attribute the recent stock gain to the stability in NTPC's future earnings. The stock trades at approximately 16 times its estimated FY08 earnings, which discounts its near-term upsides. However, there could be positive triggers in the form of it winning orders in ultra mega power projects and any success in coal mining operations.

Bharat Electronics: Order-book boost

An order-book of Rs 9,100 crore as on April 1, 2007, has seen a surge of nearly 9 per cent in the stock price of Bharat Electronics. At the end of Q3 FY07, its order-book stood at Rs 7,300 crore.

According to the company's provisional results, sales (including excise) increased by 12 per cent to Rs 3960.38 crore in FY07, while its profit before tax was up an impressive 22 per cent to Rs 1041.6 crore.

The full year results are a pleasant surprise to its first nine-month performance, which was tepid. Between April and December 2007, net sales went up 9.8 per cent y-o-y to Rs 2160 crore. Operating profit was 11.4 per cent lower over the first nine months of FY06 at Rs 456.3 crore, as the company could not protect itself from the surge in raw material prices.

As a result, operating profit margin declined a huge 506 basis points to 21.1 per cent. If it weren't for other income rising 72 per cent, its profit before tax would not have grown 18.4 per cent y-o-y in the first nine months.

On the other hand, the company has done much better in the fourth quarter, which is typically a high profit period. In Q4 FY07, Bharat Electronics posted a sales growth (including excise) of 14.3 per cent and a pre-tax profit growth of 25.4 per cent. Even pre-tax margin is up 210 per cent, indicating better efficiencies.

Mainly a defence supplier thus far, Bharat Electronics is looking at the civilian space to increase growth. To this end, it is developing MTNL's convergent billing system for voice and data, besides electronic voting machines and satellite communication for distance education.

However, on the exports front, the performance is disappointing-FY07 exports were at $11.6 million compared to $14 million a year ago, well below its targeted $24 million.

The current order book, which is defence-centric, appears promising. Orders include artillery combat command and control system, electronic warfare systems, and a secure tactical radio in the VHF band.

The company has targeted a Rs 5000 crore revenue target in FY08, which implies a growth of 26 per cent growth this year. After the results, the stock is up 13 per cent and trades at 16 times estimated FY08 EPS.