NTPC rating: Retain ‘outperform’ on strong growth visibility

NTPC reported reasonably positive results with adjusted PAT growth of 15% in FY20. Reported results were affected by a tax settlement scheme. Fixed cost under-recovery reduced to just Rs 250 crore vs Rs 800 crore in FY19. NTPC had a rise in commercial capacity of 3970 MW on std basis, 5290 MW on group basis and 8260 MW including acquisition of Neepco and THDC. Targets for FY21 and FY22 were strong at 5,950 and 5670 MW. While rebate risk is crystallised, the outstanding rose to `15,000 crore as states are yet to utilise the Rs 90,000-crore discom scheme. Retain ‘outperform’ on valuation at almost ex-growth (0.7x FY21E P/ B) while having strong growth visibility, RoE uptick and lower yields, which could drive a rerating. We value the company at 1x FY21E P/B.

NTPC finished the year on a strong note, with a strong operational performance, meeting its capacity addition target and reducing under-recoveries. Q4 results were impacted by higher one-time tax expense on settlement of outstanding claims. Based on std adj PAT and subsidiary profits, NTPC reported consolidated EPS of Rs 14.11. Dividend was cut, with total payout of Rs 3.15 vs Rs 5 in FY19, probably driven by cash flow constraints from delayed discom payments. We expect this to scale up again from next year to Rs 5.7/Rs 7.5, respectively. Balance sheet has become more efficient with a reduction in CWIP to Rs 73,100 crore from Rs 90,800 crore at FY19 end.