Buy NTPC; target of Rs 225: JM Financial

November 21
21:41 2017

JM Financial’s research report on NTPC

NTPC’s 2Q18 adjusted net profit stood at INR 29bn (+15% YoY) due to a) reversal of FY17 sales in Barh II (INR 4bn) due to regulatory disputes and b) wage provsioning of INR 2bn whih is yet to be approved by CERC. NTPC added 2.62GW of commecial capacity, however this is yet to reflect in earnings growth as they came in at the fag end of the quarter. Core RoEs (on regulated equity) came in at 22% on adjusted profits. We expect NTPC to add 4-5GW annually in FY18 and FY19 based on CEA timelines of plant execution. Thus NTPC is set to add c40% of its existing base and almost double its regulated equity base in next 2-3years.

With NTPC delivering 19%-20% core RoE despite coal accounting impact, we remain confident of 12% earnings CAGR in FY18-20e (assuming 18% core RoE from FY20). With inexpensive valuations of 1.1x FY20 BV, we reiterate our BUY rating with a TP of INR 225.

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