INSUBCONTINENT EXCLUSIVE:
Motilal Oswal Securities has a buy call on NTPC with a target price of Rs 194.
The current market price of NTPC is Rs 156.45.
Time period
earnings and stock performance in the XII plan has been marred by project delays, a squeeze in incentives, and thermal efficiencies under
the CERC regulation 2014-19
Consequently, EPS growth was subdued over FY12-17
While project execution picked up pace in FY18, earnings were impacted by unexpected shortage of domestic coal, resulting in fixed-charge
under-recovery.
All these issues are now behind
Capacity addition is expected to further pick up pace from about 4GW in FY18 to about 4.2GW in FY19, and about 5.9GW each in FY20 and FY21
of about 12 per cent over FY18-21, even after taking into account lower regulated RoE of 14 per cent (v/s 15.5 per cent currently) w.e.f
FY20.
We expect capitalization to outpace capex over the next 2-3 years, which will boost consolidated RoE and re-rate the stock
We value the stock at INR194/share based on DCF calculations.
Organic thermal capex may taper after a few years, but inorganic opportunities
and renewable energy can drive growth.
Favorable outcome on the GCV measurement issue can boost PBT by INR10-12b, while the completion of
acquisition of the state genco assets (Chhabra and assets of Bihar Genco) will boost regulated equity and earnings growth.
The stock is
trading attractive at 9.5x P/E and 1.1x P/BV FY20E.
