Subscribe to NTPC OFS issue, says Ventura Securities
Ventura Securities has come out with its report on upcoming NTPC OFS (Offer for Sale) issue. The research firm has recommended investors to "Subscribe" to this OFS issue, in its report dated February 05, 2013. According to Ventura the company has one of the safest business models in the power utility space.
February 07, 2013 / 13:25 IST
Ventura Securities has come out with its report on upcoming NTPC OFS (Offer for Sale) issue. The research firm has recommended investors to "Subscribe" to this OFS issue, in its report dated February 05, 2013. According to Ventura the company has one of the safest business models in the power utility space and expected to start captive coal mining in CY13.
NTPC is India’s largest Independent Power Producer with an installed capacity of 39,674 GW (19% of India's Installed capacity). The operational capacity of the company stands 38,174 MW. The company has set a target to have an installed capacity of 1, 28,000 MW by year 2032. Presently it has ~ 11, 378 MW under construction. It has also diversified into mining, power equipment manufacturing, oil and gas exploration, power trading and distribution. The company sells electricity to state distribution companies at RoE of 15.5% (Core equity). Beside this, the company’s trading arm – NVVN (NTPC Vidyut Vyapar Nigam Limited) is one of the top three power traders in the country. The company is expected to start captive coal mining in CY13.Key Investment Highlights
Capacity addition to drive earnings growth The company has added 2,660 MW YTD. In FY13, we expect capacity addition of 4,170 MW. In the 12th five year plan, the company plans to ~ 14,000 MW. Of these, ~70% of the capacity (~ 9,800 MW) would be added by FY15E. Even if we assume ~ 9,000 MW of capacity addition (delays are common in power capacity addition) a huge portion of 14,000 MW would be added by FY15 meaning front loading of capacity addition. This front loading of capacity addition would drive generation growth which in turn would lead to improved earnings growth.Stable business model with zero merchant power exposure
The company has one of the safest business models in the power utility space. Unlike Independent power producers, the entire fuel cost for the company is a pass through (no impact on core RoE). Moreover, the company has no exposure to merchant power where the rates are volatile. In addition, the company has no PPAs with fix price contracts where change in coal cost could have significant impact on the RoE of a project.Robust cash flow from existing operations, no dilution in equity
The gross debt /equity ratio of the company stands at 0.6x – one the best in the utility space. The existing operational capacity of 38,174 MW would give enough internal accruals to be deployed for under construction projects as well as for projects which are under the planning stage. Moreover, the front loading of capacity addition and commercialization would mean robust cash flows in the coming years. Unlike, private IPPs which have cash flow problems, robust cash flows enable the company to make advance payment to fuel suppliers.Steady earnings growth
Driven by capacity addition in FY13 and FY14, we expect Net sales to grow at CAGR of 10.7% from FY12- FY14E. Similarly we expect EBITDA and PAT to grow at CAGR of 1.5% and 9.6% in FY12- FY14E. In FY12, CWIP as % of gross block was 50%+. Higher commercialization of capacity would accelerate regulated asset base and would bring down CWIP as % of Gross block to below 35% in FY14E.Valuation & Recommendation: Since last one year months the company has underperformed Sensex by 27% mainly on account of the disinvestment overhang on the stock. At the CMP of Rs 156, we believe the stock is at attractive valuations and scope for outperformance would be large post disinvestment on account of- Attractive valuations at the lower band,
- Robust capacity addition and commercialization till date which the street is ignoring and
- Low risk business model.
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