>NTPC (HSBC)

Reiterate UW (V): Mind the delay
* FY09 results below expectations; capacity addition disappoints; tough road ahead for 22GW target in 11th plan
* Too much premium attributed to strong balance sheet as market is not factoring in delays in capacity addition
* Maintain our estimates and TP of INR142; we believe valuations are expensive versus its peers; reiterate UW (V)

FY09 results below expectations. Revenue was up 14%, to INR421bn, on 3%
generation growth. PAT was up 6%, to INR78bn (HSBCe: cINR82bn), below HSBC and consensus estimates. We think this was primarily due to additional wage provisions as well as gratuity-related expenses (cINR14bn vs 9m09 INR8.8bn).

Generation growth remains muted. Generation continues to disappoint, with only 3% growth in generation units, to 207bn. Generation has been muted due to lower plant load factor (PLF) of 91.14% (vs 92.24% in FY08) and lower capacity addition (i.e., only 2000MW of capacity achieving commercial operation in FY09).

Capacity addition plan still eludes reality: NTPC has commissioned only 1000MW in FY09 and expects to add c19.7GW of capacity over the next three years. Given that it has missed timelines in the past, we now believe it will only add c9.2GW of capacity. The company has yet to place an order for 1.8GW. NTPC has spent INR152bn in FY09 towards capacity addition and is expected to spend INR245bn in FY10.

Securing fuel supply: NTPC has received 130.7mn tonnes of coal (including 6.4mn tonnes of imported coal) and 10.81mmscmd gas for its power plant. Management expects coal import to double next year, to 12.5mn tonnes, and also expects 15mn tonnes of coal from its captive mines by FY12. However, there are considerable delays in its captive mine development, with the land acquisition for Pakri Barwadih underway.

Valuation and risks: We maintain our estimates and target price of INR142. We use the average of three different approaches to value NTPC shares and derive a target price of INR142 per share. Hence on valuation grounds we reiterate our Underweight (V) rating. Key upside risks to our rating include faster than expected execution of the capacity addition and addressing of the fuel risks.

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