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With ~35GW installed capacity NTPC is the second largest IPP in the world. The company is planning to take its capacity to 67GW (~32GW additional) by the end of 12th plan, of which visibility over 27GW is very high. However, fuel supply is expected to remain stretched in near term but operational efficiency would remain intact. We expect NTPC to report 17% revenue and 20% earnings CAGR over FY11FY14E.
AT CMP, the stock is trading at 1.9x/1.8x of FY12E/FY13E book value, 16.2x/14.4x of FY12E/FY13E earnings. Based on equal weightages to P/BV and SOTP methods, we arrive at a price target of Rs188/share. Recommend ACCUMULATE.
Investment Highlights
Nearly double capacity by FY17
NTPC is set to add 3.8GW to take its capacity to 39.1GW by end-FY12. Moreover, NTPC has additional 27.4GW capacity under various stages of development (9.8GW-under construction, 13.1GW-under bulk tendering and 4.5GW-under implementation stages). In our view, given the historical capacity addition rate, the company should be able to add 2.8GW by end-FY12E and ~23GW during entire 12th plan, which would take the total installed capacity to 62GW (v/s company’s plan of 66.5GW) by end-FY17.
Fuel supply to remain stretched
NTPC’s 90% of 35.4GW installed capacity is coal based. The company requires 164MMT coal for FY12, out of which 141MMT (+14MMT compared to FY11) would be sourced domestically and 14MMT (+4MMT compared to FY11) would be imported. However, CIL’s dispatches guidance for FY12 would lead to lower supply to NTPC. Moreover, gas supply from K-G D6 to NTPC’s ~4GW gas based capacity has been disappointing. We believe, even with higher imported coal and additional domestic coal from SCCL (recently tied 5MMT at premium to existing contract) NTPC has to operate at lower than historical average PLF.
Operation and collection efficiency to be maintained
NTPC operated its plants at an average PLF/PAF of 87%/90% against all India 77%/82% during FY11. However, given the stretched fuel supply, NTPC is expected to operate at below average PLF of 82%/80% for FY12E/FY13E. However, the company should not lose in terms of incentives as we expect plant availability to be maintained at 90%. Moreover, given the strict payment security mechanism, NTPC is expected to maintain its 100% collection efficiency trend in future.
Outlook and Valuation
We arrive at a target price of Rs188/share based on equal weightages to P/BV and DCF based SOTP methods. Our SOTP value stands at Rs184, and P/BV based value stands at Rs191 (2x FY13E BV). At CMP, the stock is trading at 1.9x/1.8x of FY12E/FY13E book value, 16.2x/14.4x of FY12E/FY13E earnings. Recommend ACCUMULATE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
With ~35GW installed capacity NTPC is the second largest IPP in the world. The company is planning to take its capacity to 67GW (~32GW additional) by the end of 12th plan, of which visibility over 27GW is very high. However, fuel supply is expected to remain stretched in near term but operational efficiency would remain intact. We expect NTPC to report 17% revenue and 20% earnings CAGR over FY11FY14E.
AT CMP, the stock is trading at 1.9x/1.8x of FY12E/FY13E book value, 16.2x/14.4x of FY12E/FY13E earnings. Based on equal weightages to P/BV and SOTP methods, we arrive at a price target of Rs188/share. Recommend ACCUMULATE.
Investment Highlights
Nearly double capacity by FY17
NTPC is set to add 3.8GW to take its capacity to 39.1GW by end-FY12. Moreover, NTPC has additional 27.4GW capacity under various stages of development (9.8GW-under construction, 13.1GW-under bulk tendering and 4.5GW-under implementation stages). In our view, given the historical capacity addition rate, the company should be able to add 2.8GW by end-FY12E and ~23GW during entire 12th plan, which would take the total installed capacity to 62GW (v/s company’s plan of 66.5GW) by end-FY17.
Fuel supply to remain stretched
NTPC’s 90% of 35.4GW installed capacity is coal based. The company requires 164MMT coal for FY12, out of which 141MMT (+14MMT compared to FY11) would be sourced domestically and 14MMT (+4MMT compared to FY11) would be imported. However, CIL’s dispatches guidance for FY12 would lead to lower supply to NTPC. Moreover, gas supply from K-G D6 to NTPC’s ~4GW gas based capacity has been disappointing. We believe, even with higher imported coal and additional domestic coal from SCCL (recently tied 5MMT at premium to existing contract) NTPC has to operate at lower than historical average PLF.
Operation and collection efficiency to be maintained
NTPC operated its plants at an average PLF/PAF of 87%/90% against all India 77%/82% during FY11. However, given the stretched fuel supply, NTPC is expected to operate at below average PLF of 82%/80% for FY12E/FY13E. However, the company should not lose in terms of incentives as we expect plant availability to be maintained at 90%. Moreover, given the strict payment security mechanism, NTPC is expected to maintain its 100% collection efficiency trend in future.
Outlook and Valuation
We arrive at a target price of Rs188/share based on equal weightages to P/BV and DCF based SOTP methods. Our SOTP value stands at Rs184, and P/BV based value stands at Rs191 (2x FY13E BV). At CMP, the stock is trading at 1.9x/1.8x of FY12E/FY13E book value, 16.2x/14.4x of FY12E/FY13E earnings. Recommend ACCUMULATE.
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