Royal Bank of Scotland :NTPC – Higher home state power sale okayed

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The government has approved an increase in power allocation up to 50% for states hosting
NTPC projects, compared with 10% previously. This looks positive for NTPC as more states
would come forward to host NTPC projects. NTPC is a defensive pick and we have a Buy rating
on the stock. The stock trades at 2.4x FY11F on a price-to-book basis.

Development
The government has approved an allocation of up to 50% power to states that are hosting
NTPC projects. Regarding the remainder, 35% of the power will go to other states and the
central government will retain its 15% share.
These would mainly cover NTPC projects coming in under the 12th (2012-17) and 13th plans
(2017-22).

Previously, 10% was the preferential allocation to the home state and 75% went to other
states, with 15% being the central government’s share.
Impact
States that face power shortages will invite NTPC to set up projects, as they directly benefit
from the higher allocation.
This also provides a more level playing field for NTPC vs private developers, who do not have
such restrictions.
Project management for NTPC becomes easier because states would help NTPC in areas
such as land acquisition and clearances to ensure faster completion of projects.
Valuation
We like NTPC on a relative basis. NTPC is a defensive pick in the sector, and we maintain
our Buy rating. The stock trades at 2.4x FY11F on a price-to-book basis, based on our
forecasts.