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NTPC – Shutting down of two units of Kaniha II, Orissa; earnings impact in the short-term
NTPC has shut down two units of its Kaniha plant following an order from Orissa pollution control board (OPCB) asking the company to shut down all four units of Kaniha stage II. This is because OPCB found some violation in ash disposal. NTPC, as per media, has asked OPCB for four months time to rectify the issue. Kaniha Stage II contributes about 5% of the FY12E profits – posing marginal risk to earnings for next one or two qtrs.
Maintain positive view
At CMP of Rs185/Share, we believe valuations are reasonable at less than 2xFY13E Book with a core ROE of ~25%. Further the likely earnings upgrade in FY12 numbers remains a trigger. Plus we see possibility of NTPC emerging as winner in a scenario of consolidation. However, rising interest rate scenario remains an overhang. Maintain Buy with Target of 204/Share.
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