NTPC -Motilal Oswal research report

Entering a growth era
Rising RoE to drive valuations high; upside of 23%
 FY13 marks the beginning of a growth era for NTPC. Over FY13-16, we expect it to add
13GW of capacity - an average of 3.3GW/year v/s historic average of 1.5-2GW/year.
 It is well placed on the fuel front, with targeted coal production from captive mines
scaling up from no contribution in FY13 to ~37mtpa by FY17.
 19% earnings CAGR, 240bp RoE expansion are key triggers for re-rating.
Robust operating performance ahead
FY13 marks the beginning of a high growth era for NTPC, with highest ever capacity
addition target of 4.2GW (2.7GW achieved), coal-based generation growth of
~8% in YTDFY13 (v/s 2% CAGR over FY10-12) and commercialization of 3.8GW in
YTDFY13, higher than the total of 1.5GW in FY11 and 1.2GW in FY12. Over FY13-16,
we expect NTPC to add 13GW of capacity - an average of 3.3GW/year v/s historic
average of 1.5-2GW/year. Higher commercialization coupled with better operating
rates would be the key driver of earnings growth. Also, there is visibility on 13th
Plan and 4.9GW of capacity already under construction, while ~10GW is under
award. NTPC is thus better placed than other developers - both on the operational
and the financial front.
Well placed on fuel front; captive mines in close proximity
NTPC aims to achieve plant availability factor (PAF) of 90% for its operating
capacity under the 12th Plan, with minimal imports of 20-22m tons, owing to
contribution from captive mines. Production from its first captive mines at Pakri
Barwadih is set to commence in FY14, with production target of 3mtpa. This along
with other captive mines would be scaled up to ~37mtpa by FY17. We note that
~30GW of NTPC's capacity is within ~400km of its five mines, which provides
flexibility on fuel supply chain management. NTPC has in-principle approval from
the Minstry of Coal (MoC) for additional blocks to cater to ~8.5GW of capacity.
Expect robust earnings growth, RoE expansion over FY13-15
We expect NTPC to deliver earnings CAGR of 19% over FY13-15, backed by capacity
addition and generation growth. Lower generation growth had impacted earnings
growth over FY10-12, which is unlikely going forward, with improving cash flows
of distribution companies (DISCOMs), lower gas-based generation driving offtake
from coal projects, etc. Also, higher capitalization and relatively low capex
intensity would bring down CWIP, leading to a 240bp improvement in reported
RoE. This will also improve FCFE for NTPC from INR3b in FY13 to INR65b in FY15.
Valuations
NTPC is quoting at historic lows on the back of 25% underperformance to
benchmark indices over the past 12 months. Strong visibility on business/earnings
growth, secure business model and low valuations are key triggers for re-rating.
We expect NTPC to report an EPS of INR13.6 for FY14 and INR15.5 for FY15. The
stock trades at PER of 10x and P/B of 1.4x on FY15 basis. Buy.

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