NTPC: Powering growth

Despite increase in sales, NTPC net dipped on account of rising input costs

NTPC reported a 1.8 per cent y-o-y fall in its operating profit (excluding other income) to Rs 1,758.3 crore in the March 2006 quarter, despite net sales expanding 13.45 per cent to Rs 7,291.4 crore. Its operating profit also declined by 374 basis points y-o-y to 24.11 per cent in Q4 FY06.

The pressure on margins in the last quarter was due to a rise in costs including rebate under one-time settlement scheme, which are basically dues from defaulting power utilities.

The NTPC stock has fallen about 15.3 per cent over the past four months as compared to a 5.7 per cent fall in the Sensex.

NTPC's commercial generation of power grew 9.84 per cent y-o-y to 46.32 billion units in Q4 FY06. Realisations for the company were estimated at Rs 1.57 per unit in the March 2006 quarter as compared to Rs 1.52 per unit a year earlier.

Higher realisations are largely due to the passing on of higher fuel costs, like gas, say analysts. Its plant load factor also improved 258 basis points to 95.73 per cent in Q4.

In FY06, its capacity increased by 1000 MW to 23,497 MW. Meanwhile, the company's consolidated operating profit margin fell 209 basis points y-o-y to 24 per cent in FY 06.

In April 2006, NTPC has introduced a new payment rebate scheme, aimed at improving its cash flows.

In Q1 FY07, the company has added 500 MW of new capacity and has also taken over the 705 MW Badarpur Thermal Power Station.

In addition, the company is expected to commission an additional 3,710 MW of capacity in FY07. The stock appears reasonably valued at about 13 times estimated FY07 earnings.

Welspun : Bright future

Welspun Gujarat Stahl Rohren has posted significantly improved performance in the March 2006 quarter with a sales growth of 86 per cent.

In FY06 too, sales have grown at an impressive 76 per cent. The company's operating profit increased 142 per cent to Rs 165.5 crore in FY06.

Welspun, a major manufacturer of longitudinal submerged arc welded pipes globally, has seen its fortunes improve as global investments in oil and gas pipelines have been on an uptrend, which is expected to continue.

As a result, Welspun has been on a capacity expansion programme, mainly its new plant at Anjar, which is close to the Kandla port.

According to the management, its annual capacity has increased from .35 mn tonne a year ago to .85 mn tonne now, and is slated to grow to over 1.4 mn tonne by October this year. Contribution from the Anjar plant, which was at 30 per cent in FY06 is expected to go up to 50 per cent this year.

Sourcing and cost of raw materials, mainly special steel plates, have been a problem for Welspun.

Raw material costs as a percentage of sales have come down 356 points y-o-y in FY06, and the operating profit margin has gone up from a low 6.57 per cent in FY05 to 9.04 per cent in FY06.

To improve raw material availability, the company is setting up a captive plant to produce plates from slabs, which are a commodity product.

According to the management, Welspun has an order backlog of Rs 1,00 crore, which will be executed over the next six-nine months. At Rs 61, the stock does not seem expensive at 10 times FY07 earnings.