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UBS Investment Research
NTPC
L ow-risk exposure [EXTRACT]
Key competitive advantages
NTPC’s share price has corrected 16% YTD and marginally underperformed the
BSE Sensex. In our view, this is unwarranted for a company with relatively low
risk, ie, a fixed return on investment-based model. We believe NTPC’s core
fundamentals are intact: 1) a high demand-supply gap in India; 2) the largest
capacity base; 3) competitive generation cost; and 4) we think fuel cost passthrough
is not at risk.
Receivables safe; NTPC may get preference in coal allocation
NTPC has a strong payment security mechanism. In case of non-payment of
receivables from SEBs, NTPC can directly recover the outstanding amount from
central government grants to respective states. This was evident in FY11: NTPC
realised 100% payment of bills from customers for the eighth successive year. We
also think that as NTPC is Coal India’s biggest customer and a government
company, it may get preference in coal allocation.
NTPC requested the coal ministry to reconsider de-allocation of blocks
The Ministry of Coal has cancelled the Kerandari, Chatti Bariatu, Chatti Bariatu
(South), Brahmini and Chichro Patsimal coal blocks allocated to NTPC (or its JVs)
due to delays in mine development. However, NTPC has requested a review of the
decision. NTPC has confirmed that it is going ahead with all activities related with
these blocks. The Ministry of Power has also requested the coal ministry to restore
the coal blocks to NTPC.
Valuation: Maintain Buy and price target of Rs215.00
The key assumptions for our DCF-based price target are: 1) a risk-free rate of
8.3%; 2) intermediate growth of 7.5%; and, 3) terminal growth of 5%.
National Thermal Power Corporation Ltd.
National Thermal Power Corp (NTPC) is the largest power generator in India,
accounting for 20% of installed capacity and 28% of generation as of June 2011.
Of the installed capacity, 88% is coal based and 12% gas based. The company
aims to double generating capacity by 2017. It is integrating backwards into coal
mining, LNG imports, and forward into the transmission and distribution sector.
Statement of Risk
We believe the key risks to our rating and price target are slower-than-expected
execution and unfavourable regulatory changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
NTPC
L ow-risk exposure [EXTRACT]
Key competitive advantages
NTPC’s share price has corrected 16% YTD and marginally underperformed the
BSE Sensex. In our view, this is unwarranted for a company with relatively low
risk, ie, a fixed return on investment-based model. We believe NTPC’s core
fundamentals are intact: 1) a high demand-supply gap in India; 2) the largest
capacity base; 3) competitive generation cost; and 4) we think fuel cost passthrough
is not at risk.
Receivables safe; NTPC may get preference in coal allocation
NTPC has a strong payment security mechanism. In case of non-payment of
receivables from SEBs, NTPC can directly recover the outstanding amount from
central government grants to respective states. This was evident in FY11: NTPC
realised 100% payment of bills from customers for the eighth successive year. We
also think that as NTPC is Coal India’s biggest customer and a government
company, it may get preference in coal allocation.
NTPC requested the coal ministry to reconsider de-allocation of blocks
The Ministry of Coal has cancelled the Kerandari, Chatti Bariatu, Chatti Bariatu
(South), Brahmini and Chichro Patsimal coal blocks allocated to NTPC (or its JVs)
due to delays in mine development. However, NTPC has requested a review of the
decision. NTPC has confirmed that it is going ahead with all activities related with
these blocks. The Ministry of Power has also requested the coal ministry to restore
the coal blocks to NTPC.
Valuation: Maintain Buy and price target of Rs215.00
The key assumptions for our DCF-based price target are: 1) a risk-free rate of
8.3%; 2) intermediate growth of 7.5%; and, 3) terminal growth of 5%.
National Thermal Power Corporation Ltd.
National Thermal Power Corp (NTPC) is the largest power generator in India,
accounting for 20% of installed capacity and 28% of generation as of June 2011.
Of the installed capacity, 88% is coal based and 12% gas based. The company
aims to double generating capacity by 2017. It is integrating backwards into coal
mining, LNG imports, and forward into the transmission and distribution sector.
Statement of Risk
We believe the key risks to our rating and price target are slower-than-expected
execution and unfavourable regulatory changes.
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