NTPC Ltd is coming up with a follow-on public offer (FPO) with an issue size of 412 million equity shares. The company is expected to raise close to Rs9,000 crore through this issue. The offer is being made through the book-building process, where up to 50% of the net offer (issue size, which is a portion reserved for employees) will be available for qualified institutional buyers (QIB), provided the bids are received from above the floor price fixed at Rs201. Retail individual bidders will be eligible for a minimum of 35% of the net offer.
The entire issue will be an offer for sale. Hence, there will be no fresh issue of shares. The proceeds of the issue will go to the government of India. After this issue, the government’s stake in the company is expected to come down from 89.5% to 84.5%. The issue is open 3-5 February.
NTPC posted a net profit growth of 5.1% year-on-year (y-o-y), aided by a marginal expansion of 164 basis points (bps) in its operating margin. The growth in the operating profit margin (OPM) was aided by a 13.3% decline in employee costs, which shot up in the third quarter of FY09 on account of a one-off expense in the form of pay commission arrears.
Graphic: Ahmed Raza Khan / Mint
Its revenue was flat at Rs11,184 crore in the quarter. Volume growth was muted due to a lower plant load factor (PLF) on account of coal shortage. On the operating front, the company reported an expansion in margins to 30.1%. Profit was up 5.1% to Rs2,365 crore. Its other income declined by 8.5% to Rs779 crore.
The company’s total power generation during the quarter stood at 54.5 billion units, up 3.7% y-o-y.
A lower PLF in some of the company’s coal-based plants due to a fuel shortage affected generation volumes. Pertinently, coal-based plants account for 85% of the company’s total operational capacity.
India, despite being one of the lowest per capita consumers of power, has an overall power deficit of 11%. The country’s demand for power, which has grown at a rate of 6% since FY03, has continued to outstrip supply. The escalation in power demand is expected to be robust, in line with the healthy gross domestic product growth estimated for the country. Apart from the demand arising from the industrial front, domestic demand is also expected to pick up, with the ministry of power’s ambitious target of achieving a per capita consumption of 1,000 units by 2012.
NTPC, the market leader in power generation, has assets of 31,134MW, which translates into a 20.5% market share of the overall domestic power industry, and plans to become a 50,000MW and 75,000MW company by FY12 and FY17, respectively. The company proposes to incur a capital expenditure of Rs17,700 crore and Rs24,000 crore, and to expand capacity by 3,300MW and 5,600MW, in FY10 and FY11, respectively.
We believe that NTPC’s regulated business model will provide it with high revenue visibility. However, delays in the completion of its projects would be a dampener. With an assured return on equity and strong cash flow visibility, we have arrived at a target price of Rs230. We are upgrading the stock to accumulate from neutral.