NTPC is one of the safest bets in the power utility space given the company’s dominant position in electricity generation, better fuel supply arrangements (FSAs) and robust power purchase agreements (PPAs). Unlike the past, we believe execution issues will no longer hinder the stock performance. Additionally, weak operating parameters like plant load factor (PLF) and Plant availability factor (PAF) are already factored in at lower valuations (P/B of 1.5x FY14E BV). Going forward, we expect improvement in NTPC’s business dynamics led by fast pace reforms. PLF and PAF have already started improving; in Q3 FY13 coal PAF stood at 88.6%, higher by ~13.7% qoq and 3.3% yoy and PLF was also high at 84.1% in Q3 FY13 v/s 75% Q3 FY12.
In a regulated model like NTPC, growth is mainly driven by capacity additions. The company has plans to add ~4GW each year till FY17. But we remain conservative and expect it to add 12 GW over FY13-16 of capacity on an average of 3GW/year v/s historical average of ~2GW/year. NTPC’s coal requirement is set to increase to ~200mn ton by FY17. NTPC has already entered into long term coal agreements to secure its fuel requirements for a capacity of ~100GW. Further, it has also been awarded eight coal mines and mining activities at two sites are expected to commence by FY14. Additionally, for NTPC, fuel cost being pass-through, the company is able to blend imported coal without hurting profitability and Coal Pooling we believe would be neutral to positive for NTPC.
NTPC operates in a regulated environment, which makes its earnings steady and secure. We believe the company’s growth will be sustained led by its regulated business model and reasonable growth in capacity addition. We expect 9% CAGR in revenues and 12% CAGR in earnings over FY12-FY15E. NTPC currently trades at a deep discount (1.4x BV of FY14E) to its historical P/B multiple (2.2x) and we expect the discount to narrow down. We value NTPC at Rs187 and rate it BUY. We think the offer for sale with a floor price of Rs145 is attractive. We recommend investors to subscribe to the offer for sale scheduled for today.
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|yoy growth (%)||10.7||2.4||13.0||13.9|
|yoy growth (%)||4.9||16.7||10.4||13.2|
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