NTPC:: Emkay: Top Recommendations: April 2011

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NTPC

RECO : ACCUMULATE TP : Rs204

Investment Rationale

§ Has signed cumulative cost plus PPAs of 1,00,000 MW with first charge on collections- we believe is likely to

emerge as the biggest winner in a scenario of consolidations/mergers two years down the line. Two years down

the line, we see (1) most of the private developers rushing for PPAs (likely merchant prices Rs2.7/unit), (2) SEBs

badly hit resorting to restrictions, caps, defaults, delays and (3) developers having problems in debt servicing. All

this could result in addressing the key concern for NTPC, which is execution (to pick up as it is in FY12E) as it is

likely to be the company sought after for (1) JVs, (2) consolidations and (3) plant buy outs.

§ The company did grossing up is at MAT rate in Q3FY11 but the company has indicated possibility of full tax rate

in Q4FY11E due to higher commissioning of capacities. To result in, 10% increase in FY11E EPS but no change

in FY12E.

§ Valuations reasonable at 2.2xFY12E Book; core ROE of 25%; Have an Accumulate rating on the stock due to

(1) higher defensiveness after huge PPAs executed & (2) 10% stock correction post Q2FY11

Valuations

§ Valuations are reasonable at 2.2xFY12E book. We assign a core book multiple to 2.6x 1yr fwd (25% equity IRR/

10 yr bond yield). Target Rs204. We would like to highlight that we are valuing the company on FY12E Book as

of now if we roll over to FY13E, there would be a further upside of about Rs15/Share.