NTPC’s Sales Decline, Net Profit Flat

The country’s largest thermal power generation company NTPC has recently announced its first quarter results.
The company has reported a 3% decline in its topline to Rs 15612 crore. The net profit grew marginally to Rs 2527 crore against Rs 2498 crore a year ago. The market was expecting a 3% rise in revenues to Rs 16628 crore and a marginal decline in net profit to Rs 2489 crore.

The decline in topline was due to a reduction in its gas-based generation capacity. Its other operating income also declined by 76% to Rs 49 crore, which also dragged the topline.

During the quarter, the company has reported 11% decline in the fuel cost. Fuel cost is the largest cost item in any power generation company and accounted for 57% of the total sales of NTPC during this quarter. In the June 2012 quarter, this had accounted for 66% of NTPC’s total sales.  The employee cost, however, has gone up by 18% in the quarter on a YoY basis. Mainly owing to a decline in the fuel cost, its total expenses have declined by nearly 8% and have helped the company report a jump in its EBITDA margins. They stood at 26.21% against 24.02% reported in the June 2012 quarter.

Interest expenses rose nearly by 24% to Rs 617 crore on a YoY basis. The interest cover ratio remains at 6.6x which is quite comfortable. The tax rate for the quarter stood at 27%, which is higher on a YoY basis but lower on a sequential basis.

The results are mostly below market expectations and hence the stock is expected to underperform. Besides, there is some ambiguity on the coal issue in the country. Also, the execution of coal supply remains in a limbo. The sourcing of coal by generation companies for their incremental capacities would remain a big question. We maintain our call of avoiding the stock at the moment.