NTPC: Capacity additions should pick up :: Daiwa

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NTPC: Capacity additions should pick up, but likely to miss the merchant bus
We forecast 17GW to be added from FY11-15
􀂃 We forecast capacity additions of 17GW over the next five years
(FY11-15); compared with the addition of 4.5GW from FY07-
10, as there has been considerable progress on most of the
company’s projects. We forecast the rate of implementation to
rise from 1GW a year (1995-2010) to 1.6GW a year (2000-15).
􀂃 However, with only 650MW of capacity planned to be allocated
to the merchant power market (about 2% of total capacity), we
do not expect the company to benefit as much as its peers.
Fuel security needs to be monitored closely
􀂃 We do not see much risk to the company’s 24GW of standalone
coal-based capacity that is dependent on CIL’s existing FSA.
However, its reliance on CIL linkage for future plants will lead
to risks of a supply shortage, in our view. We expect about
12.5GW of NTPC’s standalone capacity to be exposed to this
risk, until its captive mines are operational in FY13.
Target price lowered to Rs210, downgraded to Hold
􀂃 We have lowered our SOTP-based six-month target price to
Rs210 from Rs219. We value the core operation on a DCF basis
at Rs202 and add Rs8 per share to the OTSS bonds, aided by a
potential 13% CAGR in earnings from FY11-13. However, we
have downgraded our rating to 3 (Hold) from 1 (Buy), as we
believe the company will not benefit as much as its peers over
the next two years from the robust demand for short-term power
and expect the fuel security threat to linger until FY13.