What investors need to track is the long term (2-3 years) growth trajectory, which is where the outlook is dim. The company does not have notable capacity additions planned in the near term that can drive its revenue and profit.
NTPC shares fell 1.4% on Thursday, despite the company reporting a strong performance for the September quarter. Tracking the 4% expansion in capacity, electricity generation at the stand-alone level increased 8%.
Revenue rose 6.9% and operating profit, or Ebitda (earnings before interest, taxes, depreciation, and amortization) jumped 24%. Margins expanded 3.1 percentage points to 22.5%. The company benefited from commissioning of an 800 megawatt hydropower plant, which registered a healthy plant load factor (PLF) of 83% during the quarter. Thermal plants’ utilization, or PLF, increased four percentage points to 77%. Five plants operated at a PLF of more than 85%, making them eligible for incentives. From Rs.3.26 last year, the average tariff increased slightly to Rs.3.29 per unit in the first half of the current fiscal year.
Net profit jumped 40% due to a tax writeback. Excluding the tax benefit, the profit would have grown by 4.8%, which is still better than analysts’ estimates. To be sure, the net profit is strictly not comparable. The other income component is seeing a structural drop due to redemption of bonds. But even adjusting for the one-off items, the recurring profit increased by a healthy pace (double-digit growth), the management told analysts.
Still, as the drop in the share price shows the performance did not impress everybody. Revenue and operating profit growth lagged Street estimates by a couple of percentage points. But companies like NTPC regularly see huge prior-period adjustments, which can swing revenues and profits by a couple of percentage points. What investors need to track is the long term (2-3 years) growth trajectory, which is where the outlook is dim. The company does not have notable capacity additions planned in the near term that can drive its revenue and profit.
According to analysts, large capacity additions are skewed towards 2017-18. In the meantime the company may see low earnings growth, which can weigh on the stock. “We expect the company to deliver low earnings growth (8% CAGR over the next 2 years). We prefer Power Grid Corp. of India Ltd over NTPC, given the higher earnings growth (18%-20% over the next 2 years),” Emkay Global Financial Services Ltd said in a note. “Going forward, marginal growth can come from implementation of solar power projects. However, we think it will be significantly lower vs targets.” Perhaps that is one reason why the stock is trailing the broader markets—it’s down 15% compared with the Sensex gaining 1% in the past six months.
The writer does not own shares in the above-mentioned companies.