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Buy NTPC; target of Rs 211: Motilal Oswal

November 28
20:42 2017

Motilal Oswal’s research report on NTPC

CERC, in a letter dated November 14, 2017, has invited comments from stake holders on CEA’s recommendation to compensate power generation companies (GENCOs) 85-100kcal/kg of coal for pithead stations and 105-120kcal/kg of coal for non-pithead stations towards practical loss of GCV during storage and handing between “as received’ and “as fired” for the following reasons: Effect of moisture in GCV of coal sample taken from wagon top. Loss in GCV during coal storage inside power plant. Reduction in GCV during handling inside power plant.

Outlook
We expect capitalization to outpace capex over the next 2-3 years, which will boost consolidated RoE and re-rate the stock. We value the stock at INR211/share based on DCF. Our DCF model is based on three-stage growth. The first five years have good visibility of projects. In the next 10 years, we expect 7% growth (50% reinvestment and 14% RoE) and terminal growth of 3% (25% reinvestment and 12% RoE). The stock is trading at attractive valuations of 11.4x FY19E EPS and 1.3x FY19E BV. Buy.

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