markettrend766
28-09-2008, 09:42 AM
NTPC LTD
CMP:174
TARGET:250
TIME HORIZON 12 MONTHS
Growth Abound
We believe that NTPC would continue to maintain its position as the industry leader for the next decade when its generation capacity reaches a mammoth 75,000MW by end of FY17. Focus on coal and hydel power projects, along with captive coal sources would enable NTPC to mitigate fuel risks.
At the current price of Rs174, NTPC trades at 2.1x our estimated FY10 book value of Rs78.6, and 14.0x our estimated FY10 EPS of Rs11.6. We recommend a BUY on NTPC with a one year forward target price of Rs250.55GW power generation capacity by FY12: NTPC has one of the clearest expansion plans in the Indian power sector.
We expect that NTPC would be able to commission at least 19,431MW of new generation capacity by FY12 (26,471MW including through JV's). Of the 19,431MW, 12,670MW would come through coal-based plants 2,211MW from hydro projects, 4,550MW from gas based power projects and 7,040MW through joint ventures.
We have assumed that the gas-based projects of the company will not be commissioned towards the end of the 11th five year plan. We expect NTPC's revenues to grow at 16% CAGR to reach Rs519.0 bn by FY10, while profits would increase to Rs95.7 bn, a CAGR of 13.2%.
Captive Coal Mining: NTPC has been allotted nine coal blocks for captive consumption. Of these, seven would be independently developed by NTPC and two in a JV with Coal India. We expect NTPC to spend Rs140bn on developing the first of the blocks, with commercial production beginning in Q3FY09.
We have not assumed any savings from any of the captive mines in the initial years, but do believe that once all the captive blocks are on-stream, NTPC would be able to source about 20% of its annual coal requirement from its captive coal mines.
Valuations: At the current market price of Rs174, the company trades at 14.0x its FY10 earnings and 2.1x FY10 P/BV. We believe that NTPC commands a premium due to low floating stock, being a focused power generator, because it controls 21% of the total generation capacity in India and on account of regular planned capacity additions in the next few years.
In addition, NTPC’s cash & equivalents of Rs158.0 bn is a cushion for the company and would help it fund the massive capital expenditure of Rs724.6 bn during the 11th five year plan. Given the company's track record we do not expect the company to face any issues in raising funds, nor do we envisage any execution or implementation risks.
We believe that this justifies the premium accorded to NTPC as compared to its peers. We set the floor price for NTPC at Rs153 based on a 2.5x P/BV multiple for FY08E. We recommend a BUY on NTPC with a price target of Rs250 with a 34% capital appreciation
CMP:174
TARGET:250
TIME HORIZON 12 MONTHS
Growth Abound
We believe that NTPC would continue to maintain its position as the industry leader for the next decade when its generation capacity reaches a mammoth 75,000MW by end of FY17. Focus on coal and hydel power projects, along with captive coal sources would enable NTPC to mitigate fuel risks.
At the current price of Rs174, NTPC trades at 2.1x our estimated FY10 book value of Rs78.6, and 14.0x our estimated FY10 EPS of Rs11.6. We recommend a BUY on NTPC with a one year forward target price of Rs250.55GW power generation capacity by FY12: NTPC has one of the clearest expansion plans in the Indian power sector.
We expect that NTPC would be able to commission at least 19,431MW of new generation capacity by FY12 (26,471MW including through JV's). Of the 19,431MW, 12,670MW would come through coal-based plants 2,211MW from hydro projects, 4,550MW from gas based power projects and 7,040MW through joint ventures.
We have assumed that the gas-based projects of the company will not be commissioned towards the end of the 11th five year plan. We expect NTPC's revenues to grow at 16% CAGR to reach Rs519.0 bn by FY10, while profits would increase to Rs95.7 bn, a CAGR of 13.2%.
Captive Coal Mining: NTPC has been allotted nine coal blocks for captive consumption. Of these, seven would be independently developed by NTPC and two in a JV with Coal India. We expect NTPC to spend Rs140bn on developing the first of the blocks, with commercial production beginning in Q3FY09.
We have not assumed any savings from any of the captive mines in the initial years, but do believe that once all the captive blocks are on-stream, NTPC would be able to source about 20% of its annual coal requirement from its captive coal mines.
Valuations: At the current market price of Rs174, the company trades at 14.0x its FY10 earnings and 2.1x FY10 P/BV. We believe that NTPC commands a premium due to low floating stock, being a focused power generator, because it controls 21% of the total generation capacity in India and on account of regular planned capacity additions in the next few years.
In addition, NTPC’s cash & equivalents of Rs158.0 bn is a cushion for the company and would help it fund the massive capital expenditure of Rs724.6 bn during the 11th five year plan. Given the company's track record we do not expect the company to face any issues in raising funds, nor do we envisage any execution or implementation risks.
We believe that this justifies the premium accorded to NTPC as compared to its peers. We set the floor price for NTPC at Rs153 based on a 2.5x P/BV multiple for FY08E. We recommend a BUY on NTPC with a price target of Rs250 with a 34% capital appreciation