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NTPC Limited
Reuters: NTPC.BO Bloomberg: NATP IN Exchange: BSE Ticker: NTPC
Management tries to assuage
concerns
Maintaining Hold as concerns remain
This report marks the transfer of coverage from Manish Saxena to Abhishek Puri.
Following a 5-6% stock correction after Q1 results, NTPC's management in its
annual analyst meeting again attempted to assuage investor worries on capacity
addition, fuel linkage and progress on backward integration, (e.g. coal mining). In
our view, at current the valuation (1.8x FY13E BV) the stock is entering into a value
zone, but appears to lack catalyst(s) in the near term. We reiterate our Hold rating
and recommend investors to shift to Coal India
Management exudes confidence
As in all analyst meetings over the last few years, senior management was quite
vocal in setting 12-month targets, which include a run-rate of 12-14% volume
growth and an ability to obtain more than 60-70% of Coal India’s incremental
production in order to grow volume. Also, despite the earlier lack of slack in
capacity additions, management pointed to a 10-12% capacity addition per annum
over the next three years.
We believe the challenge for NTPC could be to demonstrate volume growth
With Coal India not yet taking the mantle to import coal, pooling coal continues to
be a challenge and it remains to be seen how NTPC could retain its status of
becoming a first priority on coal allocation, particularly under intense competition.
Our revised estimates factor in volume growth of 3% for the next three quarters
and continuance of tax arbitrage to give EPS CAGR of 10.6% over FY11-13.
In a value zone, but with the absence of near-term triggers; risks
After the 13% underperformance to the Sensex Index, our current valuation matrix
of price/book of 1.96x FY12E and 1.80x FY13E appears reasonable. However, with
no near-term catalysts and no strong generation yet, growth could result in
lacklustre 12-month stock performance. We reiterate our Hold rating. Upside risks
largely stem from better and cheaper coal procurement, driving incentives and
earnings. The key downside risk is generation volumes continuing to significantly
lag capacity additions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NTPC Limited
Reuters: NTPC.BO Bloomberg: NATP IN Exchange: BSE Ticker: NTPC
Management tries to assuage
concerns
Maintaining Hold as concerns remain
This report marks the transfer of coverage from Manish Saxena to Abhishek Puri.
Following a 5-6% stock correction after Q1 results, NTPC's management in its
annual analyst meeting again attempted to assuage investor worries on capacity
addition, fuel linkage and progress on backward integration, (e.g. coal mining). In
our view, at current the valuation (1.8x FY13E BV) the stock is entering into a value
zone, but appears to lack catalyst(s) in the near term. We reiterate our Hold rating
and recommend investors to shift to Coal India
Management exudes confidence
As in all analyst meetings over the last few years, senior management was quite
vocal in setting 12-month targets, which include a run-rate of 12-14% volume
growth and an ability to obtain more than 60-70% of Coal India’s incremental
production in order to grow volume. Also, despite the earlier lack of slack in
capacity additions, management pointed to a 10-12% capacity addition per annum
over the next three years.
We believe the challenge for NTPC could be to demonstrate volume growth
With Coal India not yet taking the mantle to import coal, pooling coal continues to
be a challenge and it remains to be seen how NTPC could retain its status of
becoming a first priority on coal allocation, particularly under intense competition.
Our revised estimates factor in volume growth of 3% for the next three quarters
and continuance of tax arbitrage to give EPS CAGR of 10.6% over FY11-13.
In a value zone, but with the absence of near-term triggers; risks
After the 13% underperformance to the Sensex Index, our current valuation matrix
of price/book of 1.96x FY12E and 1.80x FY13E appears reasonable. However, with
no near-term catalysts and no strong generation yet, growth could result in
lacklustre 12-month stock performance. We reiterate our Hold rating. Upside risks
largely stem from better and cheaper coal procurement, driving incentives and
earnings. The key downside risk is generation volumes continuing to significantly
lag capacity additions.
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