The power generator isn’t adding capacity quickly enough and that could mean a loss of momentum in revenues.
Over the past year the NTPC stock has outperformed the Sensex by a wide margin losing just 13 per cent. Since the end of January though, the stock, which has the third highest weightage in the Nifty, has lost 10 per cent and at Rs 171, trades at between 16-18 times estimated 2009-10 earnings. Both the company’s growth and visibility of earnings appear to be adequately priced into the valuations.
In fact, there are some misgivings about the tardy pace at which India’s biggest power generator is adding capacity. The Rs 38,682 crore NTPC, which produces more than a fourth of the nation’s power, had plans to add 2820 MW to its existing 28 GW by 2008-09. However, only 1,250 MW of this has come up and another 250 mw is expected by March 2009 in Bhilai. Analysts feel the planned addition of 22 GW in the eleventh plan may not come through.
That’s one reason the revenue forecasts for 2009-10 range anywhere between a growth of 5 per cent and 15 per cent. NTPC posted a compounded annual growth in net sales of 18 per cent in the three years to 2008 while net profits grew at a compounded 8.5 per cent. As of now it’s unlikely those numbers will be repeated, especially if capacity isn’t added quickly and earnings are tipped to grow by sub-10 per cent in each of the next two years.
Also, NTPC’s plant load factor (plf) suffered in the first half of 2008-09 because of the lack of fuel. However, that issue was sorted out in the December 2008 quarter when revenues rose 20 per cent y-o-y led by additional generation as also higher fuel costs that were passed on to customers. That however, couldn’t offset the higher provisions for employee costs and the operating profit margin fell 330 basis points y-o-y to 28.5 per cent.
