NTPC’s reported PAT remained flat at Rs23.7bn during the quarter. However, its adjusted PAT grew by 11% y-o-y to Rs23.2bn, marginally ahead of our estimate of Rs22.3bn. Generation remained flat at 54.7BU, despite higher capacity, as some of its units had to back down due to low demand schedule. It has tied up over 100GW under long term PPA’s with various SEB’s, thus giving comfort vis-à-vis private IPPs like JSW Energy who have higher exposure to the merchant market. Maintain HOLD with a target price of Rs216.

Continue to gross up by MAT

During the quarter NTPC continued to gross up its RoE by MAT rate against the company tax rate of ~24% in the corresponding period last year. Adjusted for this and various other items (mentioned in table overleaf), NTPC’s Q3 FY11 PAT grew by 11% y-o-y to Rs23.2bn against Rs20.9bn in the corresponding period last year.

Capacity addition remains muted

During the quarter NTPC commissioned 500MW at Korba. The company will declare this unit as commercially operational over the next couple of days. NTPC reduced its capacity addition target from 4.2GW at the beginning of the year to 3.1GW now. However, we believe this too runs the risk of slippages. NTPC plans to add 5.1GW during FY12.

CEA estimates 2.5GW to be added during FY11

Contrary to NTPC’s revised target of 3.1GW during FY11, CEA’s latest document suggests NTPC will be able to add only 2.5GW during the year. During the 9M FY11 NTPC commissioned 490MW at Dadri, 500MW at Jhajjar and 500MW at Korba. It targets to commission 500MW each at Farakka and Simhadri and 660MW at Sipat. We build in full year capacity addition of 2.5GW.

VALUATIONS AND RECOMMENDATION

With NTPC yet to add 1.7GW during Q4 FY11 to meet its revised capacity addition target of 3.1GW in FY11, we remain conservative in building fresh capacity for the year. However, we believe it offers better safety and steady returns vis-à-vis its private IPP’s like JSW Energy. NTPC has tied up 100GW under long term PPA’s thus providing steady returns. At the current price, NTPC trades at 2.1x FY12E book. We value the stock at 2.4x FY12E book to arrive at our target price of Rs216, maintain HOLD.