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NTPC, the largest generator in the country, contributes ~28% to India’s total generation. Inorder to retain its dominance and bridge the demand supply gap, it plans to add 44.4GW by 2017, thus taking its capacity to 75GW. We believe robust cash flow generated from its large asset portfolio should enable it to fully fund its equity contribution. Apart from conventional long term sale, NTPC plans to sell 2.1GW on merchant basis; however we await greater clarity on the same and hence do not factor it into our estimates.
Targets to add 75GW by FY17
NTPC plans to increase its installed capacity to 75GW by FY17, representing 16% CAGR over FY10-17. Inorder to achieve this, it will have to add ~6.3GW every year for the next seven years against its historical average of ~1.5GW. It plans to add 63GW of thermal capacity, 9GW through hydroelectric, 2GW through nuclear and 1GW through renewable by 2017.
Well secured for fuel
Inorder to secure itself for the huge demand of fuel by 2017, NTPC has entered into long term coal and gas supply agreements. It has been awarded eight coal mines of which mining plan for six has been approved and mining activities at two sites are expected to commence soon. In addition it plans to acquire mines abroad to meet the shortfall. Of the 17.5mmscmd of gas required, 9mmscmd will be sourced under APM prices, 3.9mmscmd from KG-D6, 2mmscmd from GAIL, 1mm from HPCL/BPCL and the balance on spot basis.
Steady growth business
Since NTPC operates in a regulated environment, its earnings are steady and secure. Capacity addition holds the key for future earnings growth. With addition remaining muted during the first 33months, NTPC is already lagging its XI plan target. NTPC plans to enhance its capacity to 75GW by 2017, ordering for which is expected to happen over the next year. In addition to regulated returns, any merchant sale will aid earnings growth. We value the stock based on its FY12E book and arrive at a one year target price of Rs220. However from a longer time horizon, we believe the company could offer ~25% returns.
Valuation summary
Y/e 31 Mar (Rs m)
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FY09
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FY10E
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FY11E
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FY12E
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Revenues
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410,218
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480,344
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540,835
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642,945
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yoy growth (%)
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10.6
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17.1
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12.6
|
18.9
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Operating profit
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96,042
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132,953
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157,531
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186,626
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OPM (%)
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23.4
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27.7
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29.1
|
29.0
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Pre-exceptional PAT
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72,229
|
87,831
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94,996
|
101,875
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Reported PAT
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82,013
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87,831
|
94,996
|
101,875
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yoy growth (%)
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10.6
|
7.1
|
8.2
|
7.2
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|
|
|
|
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EPS (Rs)
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8.8
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10.7
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11.5
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12.4
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P/E (x)
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24.1
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19.8
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18.3
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17.1
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Price/Book (x)
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3.0
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2.8
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2.6
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2.4
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EV/EBITDA (x)
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20.3
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14.6
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13.2
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11.8
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Debt/Equity (x)
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0.6
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0.6
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0.7
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0.7
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RoE (%)
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13.1
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14.7
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14.7
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14.6
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RoCE (%)
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11.8
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14.5
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14.6
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14.2
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Source: Company, India Infoline Research
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