NTPC- Market Performer (Target: Rs220, Upside 8.5%)

Media reports suggest NTPC plans to add 4.1GW during FY11, revised lower from its initial target of 5.4GW. We reduce our capacity addition target for FY11 and FY12 to 4GW and 4.2GW respectively to reflect the same. Lower addition over the next couple of years and slippages in the past will translate into NTPC achieving only 60% of its planned additions during the XIth plan. However, since our estimates were in line with that of CEA’s, there is no major change in our estimates. Another set of media reports suggest, NTPC has approached the government seeking the ‘Maharatna’ status. This will benefit NTPC as it will have greater financial and operational autonomy to take decisions relating to investments, joint ventures and capacity expansion. Despite slippages we believe it offers good value in the long term as it plans to enhance its capacity to 75GW by 2017. Earnings growth, which is a factor of capacity addition, can accelerate with merchant sale. However we do not factor in any merchant sale and value the stock based on its FY12E book to arrive at a one year target of Rs220/share.