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FY2013 – Will this elephant trot this year?
Still our preferred IPP amid
rising fuel security risk, but it is
time to deliver
Action: FY13F very likely to see a pick-up in execution; maintain BUY
Post a tepid FY12, we expect NTPC to finally deliver on capacity addition
targets and make visible progress towards the development of soon-to-berestored
captive coal blocks – thereby meaningfully addressing key
investor concerns of capacity growth and fuel security. In our view, this
would potentially be the elusive trigger for stock price performance.
Catalyst: 5.5GW addition in FY13; progress on captive coal blocks
Imminent FSAs with CIL and fairly advanced stage of readiness of ~5GW
capacity slated to begin commercial operations augurs well for earnings
growth; development activities at its captive coal blocks should pick up.
An effective RoE of ~20% on regulated assets seems sustainable
Factoring in the risk of potentially lower level of sustainable efficiencylinked
gains, we reduce our effective RoE forecast for NTPC’s operating
assets over our explicit forecast period to ~20% (from ~22%); we cut our
FY12F/13F/14F normalized EPS forecasts for NTPC by 4%/6%/9%.
Valuation: TP set at Rs205; target multiples below historical average
While we continue to peg our 12-mth TP based on our Residual Income
model, we raise our cost of equity assumption by 500bps to 13.0% in
order to reflect a higher risk to NTPC’s earnings growth prospects. At our
TP, the stock would trade at 2.0x FY14F P/B and 16x FY14 P/E.
We prefer PWGR over NTPC
In our view, NTPC’s multiples merit a discount to PWGR to reflect the
latter’s lower-risk business model and superior earnings growth outlook.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY2013 – Will this elephant trot this year?
Still our preferred IPP amid
rising fuel security risk, but it is
time to deliver
Action: FY13F very likely to see a pick-up in execution; maintain BUY
Post a tepid FY12, we expect NTPC to finally deliver on capacity addition
targets and make visible progress towards the development of soon-to-berestored
captive coal blocks – thereby meaningfully addressing key
investor concerns of capacity growth and fuel security. In our view, this
would potentially be the elusive trigger for stock price performance.
Catalyst: 5.5GW addition in FY13; progress on captive coal blocks
Imminent FSAs with CIL and fairly advanced stage of readiness of ~5GW
capacity slated to begin commercial operations augurs well for earnings
growth; development activities at its captive coal blocks should pick up.
An effective RoE of ~20% on regulated assets seems sustainable
Factoring in the risk of potentially lower level of sustainable efficiencylinked
gains, we reduce our effective RoE forecast for NTPC’s operating
assets over our explicit forecast period to ~20% (from ~22%); we cut our
FY12F/13F/14F normalized EPS forecasts for NTPC by 4%/6%/9%.
Valuation: TP set at Rs205; target multiples below historical average
While we continue to peg our 12-mth TP based on our Residual Income
model, we raise our cost of equity assumption by 500bps to 13.0% in
order to reflect a higher risk to NTPC’s earnings growth prospects. At our
TP, the stock would trade at 2.0x FY14F P/B and 16x FY14 P/E.
We prefer PWGR over NTPC
In our view, NTPC’s multiples merit a discount to PWGR to reflect the
latter’s lower-risk business model and superior earnings growth outlook.
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