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UBS Investment Research
NTPC
Upgrading to Buy; relatively low risk
Lower price target, upgrading rating to Buy from Neutral
NTPC has corrected 15% YTD and has also marginally underperformed the BSE
Sensex. In our view, this underperformance is clearly unwarranted for a company
with relatively low risk i.e. fixed return on an investment-based model. We
upgrade NTPC from Neutral to Buy as we think valuations are now attractive. Its
core fundamentals are intact: a) considerable demand-supply gap in the country; b)
largest capacity in India; and c) competitive cost of generation and fuel cost passthrough.
Lower FY11/12/13 EPS estimates 6%/5%/4%
We lower our FY11/12/13 EPS estimates from Rs11.29/12.51/13.38 to
Rs10.65/11.90/12.79 because of lower utilisation of coal-based projects. We have
lowered our estimates for utilisation of coal-based projects by 100bps. We think
the stock is attractive at FY12E P/BV of 1.95x (the lower end of its trading range).
Bulk tendering Phase I to be completed in next three months
According to media reports, NTPC has finalised the technically qualified bids for
the boiler part of the 11*660MW bulk tender. At this stage, BHEL and two other
consortiums (L&T-MHI and BGR Energy-Hitachi) are in the running. The Turbine
Generator (TG) qualified bids were finalised in Q3 FY11. We understand that
NTPC has already started work on Phase 2 bulk tendering (nine sets of 800MW).
Valuation: lower price target from Rs230 to Rs215
We lower our DCF-based price target 7% from Rs230 to Rs215 to reflect: 1) the
rise in the risk-free rate to 8.1%; and 2) adjustment in near-term earnings. Our
price target assumes five-year intermediate growth of 7.5% and terminal growth of
5%.
National Thermal Power Corporation Ltd.
National Thermal Power Corp (NTPC) is the largest power generator in India,
accounting for 19% of installed capacity and 28.5% of generation as on 31
March 2008. Of the company's installed capacity, 86% is coal based and 14% is
gas based. It aims to double its generating capacity by 2015. It is integrating
backwards into coal mining, LNG imports, and forward into the transmission
and distribution sector.
Statement of Risk
We believe the key risk to our rating and price target is slower-than-expected
execution and unfavourable regulatory changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
NTPC
Upgrading to Buy; relatively low risk
Lower price target, upgrading rating to Buy from Neutral
NTPC has corrected 15% YTD and has also marginally underperformed the BSE
Sensex. In our view, this underperformance is clearly unwarranted for a company
with relatively low risk i.e. fixed return on an investment-based model. We
upgrade NTPC from Neutral to Buy as we think valuations are now attractive. Its
core fundamentals are intact: a) considerable demand-supply gap in the country; b)
largest capacity in India; and c) competitive cost of generation and fuel cost passthrough.
Lower FY11/12/13 EPS estimates 6%/5%/4%
We lower our FY11/12/13 EPS estimates from Rs11.29/12.51/13.38 to
Rs10.65/11.90/12.79 because of lower utilisation of coal-based projects. We have
lowered our estimates for utilisation of coal-based projects by 100bps. We think
the stock is attractive at FY12E P/BV of 1.95x (the lower end of its trading range).
Bulk tendering Phase I to be completed in next three months
According to media reports, NTPC has finalised the technically qualified bids for
the boiler part of the 11*660MW bulk tender. At this stage, BHEL and two other
consortiums (L&T-MHI and BGR Energy-Hitachi) are in the running. The Turbine
Generator (TG) qualified bids were finalised in Q3 FY11. We understand that
NTPC has already started work on Phase 2 bulk tendering (nine sets of 800MW).
Valuation: lower price target from Rs230 to Rs215
We lower our DCF-based price target 7% from Rs230 to Rs215 to reflect: 1) the
rise in the risk-free rate to 8.1%; and 2) adjustment in near-term earnings. Our
price target assumes five-year intermediate growth of 7.5% and terminal growth of
5%.
National Thermal Power Corporation Ltd.
National Thermal Power Corp (NTPC) is the largest power generator in India,
accounting for 19% of installed capacity and 28.5% of generation as on 31
March 2008. Of the company's installed capacity, 86% is coal based and 14% is
gas based. It aims to double its generating capacity by 2015. It is integrating
backwards into coal mining, LNG imports, and forward into the transmission
and distribution sector.
Statement of Risk
We believe the key risk to our rating and price target is slower-than-expected
execution and unfavourable regulatory changes.
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