Power: Sell NTPC: Top PICKS post Correction- ENAM: India Strategy

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Power: Sell NTPC
Execution delays + Coal supply risk = Depressed RoE of 12%; valuations rich at 18x P/E for 6% earnings
CAGR
􀂙 Execution Delays to keep RoEs depressed to 12% in FY13 from 15% in FY10

􀂉 Bottom-up analysis of individual projects shows capacity addition of only 8.3 GW during FY10-13 vs.
management guidance of ~17 GW, based on project milestones achieved. This is further corroborated by Capex
incurred on these projects so far
􀂙 Risk of lower PLF due to shortage in coal supply could weigh on core RoE (Current core RoE of 26%)

􀂉 During CY10, NTPC’s units generated were flat, despite it added 1.5 GW of capacity, as its PLF declined by from
88% to 84% due to shortage in availability of coal at 5 plant totaling ~9 GW (30% of total)
􀂉 We believe NTPC’s core RoE of ~ 26%, (vs base RoE of 15.5%) which it earns largely due to its PLF being much
higher at ~90% than normative level 85% is at risk due to mounting shortage of coal from Coal India
􀂉 NTPC incrementally requires ~90 MMT over FY11-15 as against domestic coal availability from CIL of
~120 MMT. Further, the coal production from its captive mines would be much lower at ~15 MMT by FY15
􀂉 Lower PLF (due to coal shortages) would impact the core RoE
􀂙 Current valuations imply LT growth of 7% and sustainable core RoE of 26%, which in our opinion is
unachievable