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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
"Shock" absorber
ƒ Cash proxy in a volatile market; DCF-based TP of INR204
ƒ FY13E P/BV of 1.8x is 1 SD below median
ƒ De-allocation of coal blocks is not an issue
ƒ Timely capacity addition would be the key catalyst
Why has NTPC underperformed?
NTPC’s stock has underperformed the
MSCI India by 12% over the past year.
The stock has de-rated on the back of
execution delays in planned power
projects, concerns about fuel security (i.e
coal), concerns about rising discom
losses, reduction in scarcity premium with
a higher free float and more choice of
listed stocks in the Indian power sector.
NTPC trades at 1.8x FY13E P/BV, 1
standard deviation below its historical
median (Exhibit 5).
Concerns about fuel security overdone
NTPC has long-term fuel supply agreements for 125m tonnes. The
recent rationing of cheap domestic coal by the government gave priority
to fixed-return power projects over merchant power plants. All of NTPC’s
power plants are fixed-return and, consequently, its recently completed
power plants received coal linkages. We believe this policy should
provide fuel security for the company’s upcoming coal-fired plants despite
three of NTPC’s eight captive coal blocks being de-allocated (see page
3).
Catalyst: Timely capacity addition
NTPC has a disappointing track record in achieving its capacity addition
targets. It plans to add 4,480MW of capacity in FY12. However, we
expect the company to add only 3,570MW in FY12, and if NTPC
achieves its target, we believe the stock would re-rate.
Reiterate BUY with a revised TP of INR204
We roll over our DCF-based target price to FY13E, which rises 2% to
INR204 from INR200. Our DCF is based on a WACC of 11.4% using cost
of equity of 13.1%, cost of debt of 8%, tax rate of 30% and a debt-equity
ratio of 31%. The stock is trading on a FY13E P/BV of 1.8x, which is one
SD below its past seven-year median NTM P/BV. With reasonable
valuations, low fuel risk and an assured return profile, we see NTPC as a
safe defensive play in a volatile market. Key risks to our TP remain
execution delays in power projects and coal shortages leading to lowerthan-expected utilisation rates for NTPC’s power plants.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
"Shock" absorber
ƒ Cash proxy in a volatile market; DCF-based TP of INR204
ƒ FY13E P/BV of 1.8x is 1 SD below median
ƒ De-allocation of coal blocks is not an issue
ƒ Timely capacity addition would be the key catalyst
Why has NTPC underperformed?
NTPC’s stock has underperformed the
MSCI India by 12% over the past year.
The stock has de-rated on the back of
execution delays in planned power
projects, concerns about fuel security (i.e
coal), concerns about rising discom
losses, reduction in scarcity premium with
a higher free float and more choice of
listed stocks in the Indian power sector.
NTPC trades at 1.8x FY13E P/BV, 1
standard deviation below its historical
median (Exhibit 5).
Concerns about fuel security overdone
NTPC has long-term fuel supply agreements for 125m tonnes. The
recent rationing of cheap domestic coal by the government gave priority
to fixed-return power projects over merchant power plants. All of NTPC’s
power plants are fixed-return and, consequently, its recently completed
power plants received coal linkages. We believe this policy should
provide fuel security for the company’s upcoming coal-fired plants despite
three of NTPC’s eight captive coal blocks being de-allocated (see page
3).
Catalyst: Timely capacity addition
NTPC has a disappointing track record in achieving its capacity addition
targets. It plans to add 4,480MW of capacity in FY12. However, we
expect the company to add only 3,570MW in FY12, and if NTPC
achieves its target, we believe the stock would re-rate.
Reiterate BUY with a revised TP of INR204
We roll over our DCF-based target price to FY13E, which rises 2% to
INR204 from INR200. Our DCF is based on a WACC of 11.4% using cost
of equity of 13.1%, cost of debt of 8%, tax rate of 30% and a debt-equity
ratio of 31%. The stock is trading on a FY13E P/BV of 1.8x, which is one
SD below its past seven-year median NTM P/BV. With reasonable
valuations, low fuel risk and an assured return profile, we see NTPC as a
safe defensive play in a volatile market. Key risks to our TP remain
execution delays in power projects and coal shortages leading to lowerthan-expected utilisation rates for NTPC’s power plants.
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