NTPC OFS: Should you invest?

Last Updated: Thu, Feb 07, 2013 04:26 hrs

The government, which currently hold 84.5 per cent stake in NTPC, plans to sell about 783 million shares, or 9.5 per cent stake, in the company via the offer for sale route (OFC) today. The floor price has been set at Rs 145 a share and will see the Government rake in close to Rs 12,000 crore through this stake sale in the country's biggest generation utility.

"The sale shall take place on the separate window of the stock exchanges and shall commence on February 07, 2013 at 9.15 AM and shall close on the same day at 3.30 p.m.," NTPC said in a filing.

Should you invest?

NTPC has underperformed against BSE Power Index declining 10 per cent over the last 12 months. Operating parameters of its power plants are under pressure with the PLF dropping by 300-400 bps due to lower system demand and fuel issues.

Karvy Institutional Equities believes that slower capacity addition and declining plant load factor (PLF) have already factored in at low valuations of 1.5x FY14E P/BV. Going forward, their analysts see an improvement in NTPC's business dynamics, which will drive the stock from the current price.

Despite adding 2,800MW NTPC in FY12, NTPC's gross generation grew by 6 per cent in Q3FY13 from 3.6 per cent YoY in Q2FY13. Whilst low generation was the key concern for NTPC's stock performance earlier, the PLF for coal stations likely to improve on the back of improved coal supplies from Coal India and company has initiated measures to import coal which should improve the coal PLF/PAF, going ahead.

As 47 per cent slippage from the capacity addition target 11th five-year plan (FYP) has already been priced-in for NTPC. Analysts expect NTPC to add 14GW (19GW in best case scenario) in FY13-17E period. The company is targeting to complete equipment order tending by Q4FY13. The commencement of such equipment tender process could be positive for the stock performance.

Currently, NTPC is trading at 1.6x and 1.5x its FY13E & FY14E P/BV, respectively, and at EV/EBITDA of 7.9x on FY14E. Karvy maintains a "BUY" rating on the stock with target price of Rs 186 per share.

Analysts at Angel Broking, on the other hand, expect NTPC to register a CAGR of 12.3 per cent and 8.5 per cent in its top-line and bottom-line over FY2012-14E, respectively. At the offer price (which is at a 4.6 per cent discount to the price as on February 06, 2013), the stock would trade at 1.3x FY2014E P/BV.

"Given the attractive valuation (stock trading at 1.3x FY2014E P/BV compared to its three year trading range of 1.5x to 2.3x and median of 1.8x), we recommend "Subscribe" on the issue. We have assigned a multiple of 1.5x to arrive at a target price of Rs 163," says the Angel Broking report.

Observe Motilal Oswal Research's Nalin Bhatt and Aditya Bahety in their 31 January report on the company, "We expect NTPC to deliver earnings CAGR of 19 per cent 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."

"NTPC is quoting at historic lows on the back of 25 per cent 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 Rs 13.6 for FY14 and Rs 15.5 for FY15. The stock trades at PER of 10x and P/B of 1.4x on FY15 basis. Buy," it adds.

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