CMP:
Rs. 129.85; Buy at current levels and Accumulate at every dipps. Medium to Long term Target: Rs. 170.00; STOP LOSS – Rs. 119.45;
Market Cap: Rs. 1,07,067.35 Cr; 52 Week High/Low: Rs. 175.50 / Rs. 126.55
Total
Shares: 824,54,64,400 shares; Promoters: 618,40,98,300 shares – 75.00 %; Total
Public holding: 206,13,66,100 shares – 25.00 %; Book
Value: Rs. 88.89; Face Value: Rs. 10.00; EPS: Rs. 15.30; Dividend: 40.00 %;
P/E: 8.48 times; Ind. P/E: 11.74;
EV/EBITDA: 6.68
Total
Debt: Rs. 47,338.33 Cr; Enterprise Value: Rs. 1,38,260.04 Cr.
NTPC INDIA LTD: The Company was founded in 1975 and is based in New Delhi, India. NTPC
Limited engages in the generation, distribution, and sale of bulk power to
state power utilities in India. It generates power from coal, gas, hydro, and
liquid fuel sources. The company also undertakes consultancy and turnkey
project contracts that comprise engineering, project management, construction
management, and operation and maintenance of power plants. In addition, it
engages in the oil and gas exploration, and coal mining activities. The
Company’s other business includes providing consultancy, project management and
supervision, oil and gas exploration, and coal mining. The Company has nearly
completed execution two projects: Lata Tapovan hydro electric project (171
mega-watts (MW)), located in Chamoli District of Uttarakhand and Rammam Hydro
Electric Project, Stage III (120 MW) located in Darjeeling District of West
Bengal and West Sikkim District of Sikkim. The company has approximately 39,174
Megawatts of installed capacity. Company had five subsidiaries: NTPC Electric
Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, NTPC Hydro Limited,
Kanti Bijlee Utpadan Nigam Limited and Bhartiya Rail Bijlee Company Limited.
NTPC is locally compared with Adani Power Ltd; TATA Power Ltd; Reliance Power
Ltd; GVK Power and Infra; Jaiprakash Power ventures; Gujarat Industries Power
Company Ltd; PTC India Ltd and CESC Ltd and globally its is compared with
Aboitiz Power Corp of US; Abu Dhabi National Energy Co of UAE; Beijing Jingneng
Thermal Power Co Ltd of China; Boguchanskaya GES OAO of Russia; Duke Energy
International Geracao Paranapanema SA of Brazil; Eden Energy Ltd from
Australia; Electric Power development
Co., Ltd of Japan; The Chuqoku Electric Power Company Incorporation of Japan;
Hokkaido Electric Power Company Incorporated of Japan.
Investment Rationale:
NTPC has been
allocated four coal mines by the Ministry of Coal (MOC) with an aggregate
reserve of 2bn tonnes. Two of these mines are in Chhattisgarh and two are in
Orissa. A total of 14 mines were allocated with estimated reserves of 8bn
tonnes & production capacity of 159mt p.a that should support 32000WMs. The
previously, NTPC had been allocated six coal blocks, namely Pakri‐Barwadih, Chatti‐Bariatu, Kerandari, Dulanga, Talaipalli and Chatti‐Bariatu (S), the production pegged from these mines was to the tune of 73m tonnes
p.a (or 11000MWs) and the mining was to start in 2010. In 2012, three of the
blocks, namely, Chatti Bariatu, Chatti Bariatu (S) and Kerandari were de-allocated on the grounds of a
substantial delay in development. Subsequently, they were reallocated to NTPC.
The company is yet to start producing from these mines and the total
expenditure incurred on mine development till March 2013 was to the tune of Rs.
1200 Cr which is 10% of the total cost. NTPC, however, is expected to start
production from its Pakri‐ Barwadih mine from FY14E. The first year production will be close to 2m tonne,
which is then expected to scale up to 40m tonnes by the end of 2017. Even if
the production ramps up from Pakri‐Barwadih, the Koderma‐Hazaribagh‐Banadag‐ Shivpuri‐Tori railway line, which will carry the output, is getting
delayed. However, once these mines get operationalised, the company will earn
regulated returns on their investments too. NTPC’s wholly owned subsidiary NTPC
Vidyut Vyapar Nigam Ltd has bagged a contract to supply 300Mw round the clock
power to Kerala State Electricity Board. The Power Purchase Agreement between
NTPC Vidyut Vyapar Nigam Ltd and Kerala state State Electricity Board is
estimated to be around 7 billion units of power supply sourced by the former
from Chhattisgarh during the contract period. NTPC reported Q1FY14 Revenue at Rs. 15,383 Cr a decline of 3% yoy and EBITDA improved by 15.4% yoy to Rs. 4064.40 Cr due to lower fule expenses. Company reported its PAT which declined 2.6% yoy to Rs. 2,326.3 Cr. However, NTPC has added 500MW in Q1FY14 and expects to add about 1.87 GW in FY14 .
Outlook and
Valuation:
NTPC is targeting captive
mining of about 37mmt by FY17 in a bid to secure its fuel supply position.
Production at Pakri Barwadih mine (15 million tonnes, located in Jharkhand) is
expected to commence in FY14. Even though NTPC imports 6% of its coal
requirements, the full pass-through of costs insulates the company from the
risks of a depreciating INR. Further, even as the 28% of its borrowings are in
foreign currency, complete pass-through provides relief here too. A strong
balance sheet provides comfort, its current cash holding is around Rs 70,000 Cr and leverage low at 0.7x. NTPC has outlined 10GW of
capacity addition over FY14-FY17, lending strong visibility to growth. The
company looks better placed to achieve it commissioning schedules as compared
to its private power producers who are still struggling with their capacity
addition plans. The company is targeting coal imports of around 16 mmt in FY14,
of which orders have already been placed for 7mmt. Further, the project for an
inland waterway at Farakka of 2,100 MW is expected to become operational in Q1
of FY14. NTPC has recently signed two models Fuel Supply Agreement with Coal
India and expects to sign another FSA for 9 GW capacity for which coal were
supplied through MOU’s earlier. NTPC
can have PAT CAGR of around 6% over FY13-FY16. At the CMP of Rs. 129.85, the stock
is trading at a P/E of 10.47 x FY2014E and 10.06 x FY2015E respectively.
Earnings per share (EPS) of company for FY14E and FY15E are seen at Rs. 12.40 and Rs. 12.90 respectively, in my view the Fair Value of NTPC comes at Rs. 170
valuing Standalone Company at Rs. 155/share and valuing its subsidiaries &
JV’s at Rs. 15/share and valuing OTSS bonds at Rs. 8/share. One can buy at current levels and accumulate NTPC at every dips with a target price for Medium to Long term investment of Rs. 170.00 which represents 30% upwards from CMP Rs. 130.00.
KEY FINANCIALS | FY13 | FY14E | FY15E | FY16E |
---|---|---|---|---|
SALES (₹ Crs) | 65,673.90 | 72,004.00 | 74,753.70 | 80,434.10 |
NET PROFIT (₹ Cr) | 9,493.30 | 10,238.80 | 10,623.60 | 11,225.60 |
EPS (₹) | 11.50 | 12.40 | 12.90 | 13.60 |
PE (x) | 12.40 | 11.50 | 11.10 | 10.50 |
P/BV (x) | 1.50 | 1.40 | 1.30 | 1.20 |
EV/EBITDA (x) | 8.60 | 8.90 | 9.20 | 9.00 |
ROE (%) | 12.40 | 12.30 | 11.90 | 11.70 |
ROCE (%) | 7.80 | 6.30 | 5.50 | 5.80 |
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