NTPC : Preferred IPP on relative fuel/payment security : Nomura Research

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Preferred IPP on relative fuel/payment security
Adjusting estimates post clarity
on 2QFY12 ‘normalised’ financials


Action – Maintain Buy; forecast/TP adjusted for 1HFY12 financials
Incorporating its 2QFY12 financials (at Rs20.4bn, normalised PAT was
7% above our forecast), we tweak our FY12-14F normalised EPS forecast
for NTPC by ~2%. We maintain that ~9GW wholly owned commercial
capacity addition by March 2014, yielding FY12F-14F EPS CAGR of
~13%, will likely underpin price performance.
Valuation – Stock trades ~20% below historical average multiples
Our TP of INR206 is a sum of the fair value of operating assets based on
a residual income model (INR176), investment in JVs/subsidiaries
(~INR10) and book value of FY12F non-operating financial assets
(~INR21). Our TP implies FY13F P/BV at 2.1x (10% below its historical
one-year forward P/BV of 2.3x).
Catalysts: 5GW addition in 18 months; captive coal block restoration
Event-linked catalysts: 1) Restoration of the five de-allocated captive coal
blocks by the MoC; 2) acquisition of equity stakes in overseas coal assets
/ securing long-term imported coal supply; and 3) bulk-tendering orders
award by March 2014 to fructify FY2016-17F capacity growth prospects.
Preferred IPP pick; ~20% RoE on regulated assets seems sustainable
As fuel constraints rise across the board, we maintain that among the
IPPs under our coverage, NTPC offers high earnings visibility, the lowest
funding risks and adequate fuel security (particularly as pricing is a passthrough).