Despite under-recovery of Rs 2.2 bn, NTPC delivered strong Q3FY22 results with a 5% PAT outperformance led by better realisation. Key highlights: (i) Brownfield expansion of assured RoE-based thermal capacity with carbon capture technology (1.3GW Talcher NIT issued and another 5.3GW under consideration) with carbon capture. (ii) Plans afoot for RE monetisation by Q3FY23. Management emphasised RE as key focus with 7.5GW under various stages; this along with pilot projects in Green Hydrogen-based Microgrid, Mobility and blending look promising.

Given NTPC’s improved Kd and control over RE project cost, we expect a much better discovery for its RE valuation (double-digit in the least). Maintain ‘Buy’ rating with a TP of Rs 175 and the top pick status.

Good quarter: overdue receivables back in shape
Standalone gross generation increased 11.1% y-o-y to 72.7BU while group generation was up 14.9% y-o-y to 87.9BU. Fuel cost at Rs 2.15/unit is better than expectation. Coal PLF is 67.6%, up 333bp y-o-y, while PAF was 85.5%, down 361bp y-o-y due to planned shutdown. Management indicated there are no fuel-based under-recoveries in nine months out of total under-recovery of Rs 6.5 bn (extra overhauling due to Covid) while Rs 3 bn is likely to be recouped in Q4. With overdue debtors coming down by more than 70% y-o-y to Rs 45 bn, the surcharge income has reduced considerably (down 70% y-o-y to Rs 1.7 bn in Q3FY22). All subsidiaries/JVs reported strong growth with Rs 6.3 bn in dividend income booked. Regulated Equity stood at Rs 705 bn (up 9% y-o-y) and likely double-digit growth over FY22–24e.

Thermal brownfield and RE greenfield – Exciting times ahead
NTPC is expanding 1.3GW Talcher thermal (another 5.3GW under consideration) which will be based on carbon capture/Blue coal technology. While we await clarity on unit economics, RoE-assured thermal expansion is comforting, though watch out for final PPA. Management is confident of 15GW RE capacity by FY25e (7.5GW being implemented)—40% capex mix towards RE. NTPC has a unique advantage of leveraging its thermal plants to blend RE and supply RTC power.

Outlook: Covering all bases
NTPC’s transition towards green power is gaining heft, with further expansion in distribution, transportation and chemicals through Green Hydrogen. Value unlocking is on the cards, in our view, as RE and NVVNL get listed separately. Given 13% EPS CAGR over FY22–24e, a 5% dividend yield and 1x FY23E P/BV, we retain ‘BUY/SO’.