OFS Note | Power

February 23, 2016

NTPC

SUBSCRIBE

Strong play on the power sector

Issue Open: February 23, 2016

Issue Close: February 24, 2016

Incorporated in 1975, NTPC is Indias largest power company with total installed

Issue Details

capacity of 45,548MW (including JVs) with 18 coal based and 7 gas based
stations and accounts for ~26% of the total power generation in the country.

Capacity additions to drive regulated equity: NTPC is a long term growth

play on the power sector with its strong capacity addition plans. The companys
current consolidated capacity stands at 45,048MW and is expected to add
~23,500MW (~7,500MW by FY2017, ~8,050MW in FY2018 and ~8,200MW
in FY2019) by FY2019. The company has earmarked a consolidated capex of
~`31,500cr this fiscal. With the strong capex plan, Management expects a 45%

Face Value: `10

Present Eq. Paid-up Capital: `8,246cr
Offer Size: 41.2cr Shares
Post Eq. Paid-up Capital: `8,246cr
Issue size (amount): `5,030cr
OFS Floor Price: `122

jump in regulated equity by FY2018 and a 75% increase by FY2019.

Retail Discount: 5%

Well placed to benefit from demand recovery: Power sector woes have

OFS Floor Price (Retail): `116

mostly been related to fuel supply issues and debt issues of State Electricity Boards
(SEB). We believe the government is proactively taking steps to resolve both these
issues. With increasing production at Coal India, coal availability issues have
already been sorted to a large extent. The UDAY scheme can help the SEBs

Post-issue implied market cap:

`104,594cr
Promoters holding Pre-Issue: 75.0%
Promoters holding Post-Issue: 70.0%

restructure their debt and provide long term solutions for the SEBs via tariff hikes
and improvements in operating efficiencies. NTPC is best placed within the power
sector to benefit from any such revival in power demand.

Outlook and valuation: We like NTPC for the growth offered by its regulated
equity model, huge capacity addition plans and expected improvement in

Post Issue Shareholding Pattern

Promoters Group

70.0

MF/Banks/Indian
FIs/FIIs/Public & Others

30.0

demand for power in the country. At the offer-for-sale (OFS) price of `122, the
stock is available at an FY2017E EV/EBITDA of ~8.3x and P/E of 9.2x FY2017E
EPS of `13.3. Retail shareholders will get an additional discount of 5%, implying
an OFS floor price of `116. We remain positive on the stock with a target price of
`146, based on ~1.3x FY2017E BV, implying a 20% upside from the OFS floor
price (26% for retail investors). Hence, we recommend investors to subscribe for
NTPC shares in the OFS.
Key financials (Consolidated)
Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

Revenue

69,377

78,951

80,622

87,271

99,297

% chg
Adj. net profit

5.3

13.8

2.1

8.2

13.8

12,591

11,404

9,986

9,687

10,965

% chg

16.2

0.0

(12.4)

(3.0)

13.2

Adj. EPS (`)

13.8

13.8

12.1

11.7

13.3

OPM (%)

26.2

25.0

21.7

23.4

23.5

P/E (x)

8.0

8.8

10.1

10.4

9.2

P/BV (x)

1.2

1.2

1.2

1.2

1.1

RoE (%)

16.2

13.6

11.8

11.5

12.2

RoCE (%)

10.0

9.3

6.9

8.0

8.6

EV/Sales (x)

2.2

2.1

2.2

2.2

2.0

EV/EBIDTA

8.4

8.4

10.3

9.4

8.3

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

Rahul Dholam
Tel: 022- 3935 7800 Ext: 6847
rahul.dholam@angelbroking.com

NTPC | OFS Note

Company Background
Incorporated in 1975, NTPC is Indias largest power company with total installed
capacity of 45,548MW (including JVs) with 18 coal based and 7 gas based
stations. The company has set a target to have an installed power generating
capacity of 1,28,000MW by the year 2032. The capacity will have a diversified fuel
mix comprising 56% coal, 16% gas, 11% nuclear and 17% renewable energy
sources including hydro. By 2032, non-fossil fuel based generation capacity shall
make up nearly 28% of NTPCs portfolio. NTPC has been operating its plants at
high efficiency levels. Although the company has 17.73% of the total national
capacity, it contributes 25.91% of total power generation due to its focus on high
efficiency.

Issue Details
The Promoter (Government of India), proposes to sell 41,22,73,220 equity shares
of face value of `10 each, representing 5% of the total paid up equity share capital
of the company. NTPC has fixed the OFS floor price at `122 per share (~4%
discount to its closing price as on February 22, 2016). Retail shareholders will get
an additional discount of 5% over their bid price, implying a floor price of `116
(~9% discount to closing price as on February 22, 2016). A minimum of 20% of
the issue is reserved for retail investors.
The offer for sale will be open for subscription to non-retail investors on February
23, 2016. Non-retail investors who have placed their bids on February 23, 2016,
will be allowed to revise their bids on February 24, 2016.
Retail investors shall be allowed to place their bids only on February 24, 2016. We
would advise investors to monitor the bidding pattern and bid accordingly (slightly
above cut-off in case of oversubscription).

Exhibit 1: Shareholding Pattern

Particulars

Pre-Issue

Post-Issue

No. of shares

(%)

No. of shares

(%)

Promoter and promoter group

6,18,06,14,980

75.0

5,76,83,41,760

70.0

Total public holding

2,06,48,49,420

25.0

2,47,71,22,640

30.0

Total

8,24,54,64,400 100.0

8,24,54,64,400 100.0

Source: Company, Angel Research

February 23, 2016

NTPC | OFS Note

Investment arguments
Strong capacity additions to drive regulated equity
NTPC is a long term growth play on the power sector with the company having
plans to increase its total capacity to 128GW by 2032. The companys current
consolidated capacity stands at 45,548MW. NTPC has a strong capacity addition
plan over the next 4-5 years and is expected to add ~23,500MW by FY2019. The
company will commission 7,500MW by FY2017, ~8,050MW in FY2018 and
~8,200MW in FY2019. The company has earmarked a consolidated capex of
~`31,500cr this fiscal. We expect the strong capex plan to drive the regulated
equity base going forward. The Management has guided for a 45% jump in
regulated equity by FY2018 and a 75% increase by FY2019.

Exhibit 2: Capacity addition to remain strong

Exhibit 3: PLF to stabilise going forward

55

320

50

51

88

300

GW

47
43

40

83

260

44

82
250

240

41

220

37

35
34

237

82

260

251

240

80

80

80

FY2013

Source: Company, Angel Research

February 23, 2016

FY2014

FY2015

FY2016E

FY2017E

80
78
76

FY2011
FY2012

86
84

273

200

30
FY2011

302

85

280
45

90

88

FY2012

FY2013 FY2014
Generation (BU)

FY2015 FY2016E FY2017E

PLF (%)

Source: Company, Angel Research

NTPC | OFS Note

Exhibit 4: Project Pipeline

Project

Target MW

Bongaigaon (Unit 1)

250

Koldam (Unit 3 & 4)

400

Vindhyachal -V (Unit 3)

500

Kanti Subsidiary (Unit 4)

195

Nabinagar (BRBCL) (Unit 1)

250

Kudgi-I (Unit 1)

800

Singrauli Hydro
Total FY16

8
2,403

Barh I (Unit 1)

660

Bongaigaon (Unit 2 & 3)

500

Nabinagar (BRBCL) (Unit 2 & 3)

500

Kudgi (Unit 2)

800

Mouda II (Unit 1 & 2)

1,320

Solapur (Unit 1)

660

Meja

660

Total FY17

5,100

Barh I (Unit 2 & 3)

1,320

Kudgi (Unit 3)

800

Solapur

660

Lara

1,600

Gadarwara

1,600

Unchahar- IV

500

Nabingar (BRBCL JV) (Unit 4)

250

Meja (JV) (Unit 2)

660

Nabinagar (NPGCPL- JV)

660

Total FY18
Tapovan HPP

8,050
520

Daralipali (Unit 1& 2)

1600

North Karanpura (Unit 1, 2 & 3)

1980

Tanda-II

1320

Nabinagar (NPGCPL- JV)

1320

Total FY19

8,200

Rammam (Hydro)

120

Lata Tapovan (Hydro)

171

Khargone

1320

Total FY20 & beyond

1,611

Source: Company, Angel Research

February 23, 2016

NTPC | OFS Note

Well placed to benefit from demand recovery

Power sector woes in recent times have been mostly related to fuel supply issues
and weak demand from SEBs. We believe the constraints in availability of coal
have eased significantly in line with the step up in production at Coal India. The
government has shown strong focus in easing fuel supply issues. Rationalisation
and swapping of coal sources are alone expected to result in significant savings in
freight costs. Cabinet approval for gas pooling also raises expectations of
improved availability of gas. As per the Power Ministry, NTPC is expected to save
`8,570cr per annum through substitution of imported coal and freight cost
reduction through rationalization of coal sourcing.

Exhibit 5: Savings - NTPC

Substituting imported coal, MoU/E-Auction
coal by 100% ACQ coal
Rationalization / swapping of coal sources
including freight charges
Total

Savings (` Cr)

Per Unit (`)

7,300

0.30

1,270

0.05

8,570

0.35

Source: Ministry of Power, Angel Research

We also expect demand to improve going forward as the industrial cycle picks up
and the debt restructuring under the UDAY scheme allows the SEBs to start signing
new power purchase agreements (PPA). Under UDAY, SEBs would be offered a
multi-pronged solution. States shall take over 75% of their debt as on September
2015, while the interest rate for the balance 25% debt will be at lower rates. States
accepting the scheme and performing as per operational milestones will be given
additional / priority funding through various schemes under the power ministries.
The UDAY scheme will also focus on operational efficiencies, reduction in T&D
losses and quarterly increase in tariffs in a bid for permanent resolution of SEB
issues. We believe this is a promising scheme that can help the SEBs restructure
their debt and allowing them to sign new PPAs. NTPC is well placed to benefit from
any such revival in power demand.

February 23, 2016

NTPC | OFS Note

Outlook and valuation

We like NTPC for the growth offered by its regulated equity model, huge capacity
addition plans and expected improvement in demand for power in the country. At
the offer-for-sale (OFS) price of `122, the stock is available at an FY2017E
EV/EBITDA of ~8.3x and P/E of 9.2x FY2017E EPS of `13.3. Retail shareholders
will get an additional discount of 5%, implying an OFS floor price of `116.
We remain positive on the stock with a target price of `146, based on ~1.3x
FY2017E BV, implying a 20% upside from the OFS floor price (26% for retail
investors). Hence, we recommend investors to subscribe for NTPC shares in the
OFS.

Exhibit 6: Valuation
Price / BV
FY2017E Net Worth
Multiple (x)
Equity Value
Target price (`)

(` cr)
92,720
1.3
120,535
146

Source: Company, Angel Research

February 23, 2016

NTPC | OFS Note

Profit & loss statement (Consolidated)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

Net Sales

67,953

78,479

79,944

86,643

98,583

Other operating income

1,424

472

678

628

714

Total operating income

69,377

78,951

80,622

87,271

99,297

5.3

13.8

2.1

8.2

13.8

Total Expenditure

51,194

59,252

63,110

66,807

75,982

Fuel cost

42,828

47,790

51,461

54,135

61,564

Employee Costs

3,551

4,039

3,890

4,381

4,984

Other Expenses

4,815

7,423

7,759

8,291

9,433

18,182

19,699

17,512

20,464

23,315

% chg

EBITDA
% chg

17.8

8.3

(11.1)

16.9

13.9

(% of Net Sales)

26.2

25.0

21.7

23.4

23.5

Depreciation& Amortisation
EBIT
% chg
(% of Net Sales)
Interest & other Charges
Other Income

4,770

5,565

6,075

6,926

14,929

11,948

14,389

16,389

16.5

4.0

(20.0)

20.4

13.9

20.7

18.9

14.8

16.5

16.5

2,481

3,203

3,570

3,921

4,117

4,732

2,760

2,079

2,120

2,163

16,611

14,486

10,456

12,588

14,435

26.4

(12.8)

(27.8)

20.4

14.7

4,025

3,082

464

2,895

3,464

24.2

21.3

4.4

0.2

0.2

12,586

11,403

9,992

9,693

10,971

(5)

(0)

Reported PAT

12,591

11,404

9,986

9,687

10,965

Adjusted PAT

11,402

11,404

9,986

9,687

10,965

Profit before tax

% chg
Tax Expense
(% of PBT)
Recurring PAT
Minority Interest
Share of associates

February 23, 2016

3,823
14,359

% chg

16.2

0.0

(12.4)

(3.0)

13.2

(% of Net Sales)

16.4

14.4

12.4

11.1

11.0

NTPC | OFS Note

Balance sheet (Consolidated)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

SOURCES OF FUNDS
Equity Share Capital

8,245

8,245

8,245

8,245

8,245

Reserves & Surplus

72,995

78,758

73,849

78,522

84,474

Shareholder Funds

81,241

87,003

82,094

86,768

92,719

645

680

888

894

900

70,419

81,455

94,003

98,703

1,03,638

Deferred Tax Liability

1,081

1,239

1,266

1,266

1,266

Other Long term liabilities

4,458

5,914

6,019

6,260

6,511

1,57,843

1,76,293

1,84,270

1,93,891

2,05,034

1,13,804

1,31,394

1,43,394

1,56,606

1,85,406

Less: Acc. Depreciation

41,971

47,186

52,750

58,826

65,751

Net Block

71,833

84,208

90,643

97,780

1,19,654

Capital Work-in-Progress

46,555

53,825

68,764

70,764

55,764

Minority Interest
Total Loans

Total Liabilities
APPLICATION OF FUNDS
Gross Block

Goodwill
Investments
Current Assets
Cash
Inventories

February 23, 2016

4,923

3,300

1,902

1,902

1,902

42,903

42,823

39,904

30,703

37,812

18,738

17,051

14,252

7,636

10,468

4,641

6,062

7,972

6,270

7,174

Debtor

6,096

6,726

9,250

7,367

8,740

Other

13,428

12,985

8,430

9,430

11,430

Current liabilities

20,933

23,820

35,306

26,356

29,959

Net Current Assets

21,970

19,002

4,598

4,348

7,853

Other Assets

12,562.5

15,957.1

18,362.7

19,097.2

19,861.1

Total Assets

1,57,843

1,76,293

1,84,270

1,93,891

2,05,034

NTPC | OFS Note

Cash flow statement (Consolidated)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

Profit before tax

16,611

14,486

10,456

12,588

14,435

3,827

4,774

5,565

6,075

6,926

(410)

(1,281)

1,748

(6,365)

(674)

Depreciation
Change in Working Capital
Others

(541)

1,178

(2,198)

(728)

(758)

Direct taxes paid

(2,980)

(2,687)

(464)

(2,895)

(3,464)

Cash Flow from Operations

16,508

16,469

15,107

8,675

16,465

(Inc.)/ Dec. in Fixed Assets

(20,406)

(18,948)

(26,939)

(15,212)

(13,800)

(Inc.)/ Dec. in Investments

1,629

1,622

1,399

Others
Cash Flow from Investing
Issue of Equity

February 23, 2016

1,932

1,817

(16,845)

(15,509)

(25,540)

(15,212)

(13,800)

Inc./(Dec.) in loans

10,010

9,385

12,548

4,700

4,935

Dividend Paid (Incl. Tax)

(3,550)

(5,019)

(5,019)

(5,019)

(5,019)

Others

(5,472)

(7,014)

105

241

250

Cash Flow from Financing

988

(2,648)

7,634

(78)

167

Inc./(Dec.) in Cash

651

(1,687)

(2,799)

(6,615)

2,832

Opening Cash balances

18,087

18,738

17,051

14,252

7,636

Closing Cash balances

18,738

17,051

14,251

7,636

10,468

NTPC | OFS Note

Key Ratios
Y/E March

FY2013

FY2014

FY2015

FY2016E

FY2017E

Reported EPS

15.3

13.8

12.1

11.7

13.3

Adjusted EPS

13.8

13.8

12.1

11.7

13.3

Cash EPS

19.9

19.6

18.9

19.1

21.7

5.8

5.8

5.8

5.8

5.8

98.5

105.5

99.6

105.2

112.4

P/E (on FDEPS)

8.0

8.8

10.1

10.4

9.2

P/CEPS

6.1

6.2

6.5

6.4

5.6

P/BV

1.2

1.2

1.2

1.2

1.1

Dividend yield (%)

4.7

4.7

4.7

4.7

4.7

EV/Sales

2.2

2.1

2.2

2.2

2.0

EV/EBITDA

8.4

8.4

10.3

9.4

8.3

EV/Total Assets

1.0

0.9

1.0

1.0

0.9

ROCE

10.0

9.3

6.9

8.0

8.6

ROE

16.2

13.6

11.8

11.5

12.2

Per Share Data (`)

DPS
Book Value
Valuation Ratio (x)

Returns (%)

Turnover ratios (x)

Asset Turnover (Gross Block)

0.7

0.6

0.6

0.6

0.6

Inventory (days)

23.2

24.7

31.8

29.8

24.7

Receivables (days)

33.6

29.6

36.2

34.7

29.6

Payables (days)

68.4

68.8

98.4

98.5

68.7

WC cycle (ex-cash) (days)

23.4

12.0

(17.4)

(27.1)

(10.9)

Net debt to equity

0.6

0.7

1.0

1.0

1.0

Net debt to EBITDA

0.7

0.8

0.8

0.9

0.9

Interest Coverage (EBIT / Interest)

5.8

4.7

3.3

3.7

4.0

Solvency ratios (x)

February 23, 2016

10

NTPC | OFS Note

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
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Disclosure of Interest Statement

NTPC

1. Analyst ownership of the stock

No

2. Angel and its Group companies ownership of the stock

No

3. Angel and its Group companies' Directors ownership of the stock

No

4. Broking relationship with company covered

No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

over 12 months investment period):
February 23, 2016

Buy (> 15%)

Accumulate (5% to 15%)

Reduce (-5% to -15%)

Neutral (-5 to 5%)

Sell (< -15)
11