Motilal Oswal is bullish on NTPC has recommended buy rating on the stock with a target price of Rs 211 in its research report dated September 13, 2017.
Motilal Oswal's research report on NTPC
NTPC’s standalone (NTPCsa ) reported PAT (excluding impairment of INR7.8b investment in the Ratnagiri JV) declined 5.6% to INR102b in FY17 (Exhibit 1 ). Reported PAT for base year FY16 was revised upwards by 5.1% to INR108b on migration to Ind -AS (capitalization of major spares, re cognition of operating and finance leases). Adjusted PAT was flat at INR96.4b. NTPCsa core PAT grew 1.1% to INR88.2b in FY17, as per our calculations (Exhibit 2 ). Regulated RoE (15.5%) and interest on normative working capital were the key drivers. They contributed 75% and 27%, respectively to core PAT. Incentives from higher PLF, and efficiencies in oil consumption contributed just 2- 3% to core PAT ; this was more than offset by under -recoveries in fuel/O&M cost post change in location of GCV measurements to wagon- top.
We expect regulated equity to grow at ~20% CAGR and consolidated PAT to grow at 14% CAGR over FY17 -20. Capitalization would start to outpace capex, boosting RoE and driving stock re - rating. The stock trades at 1.2x FY19E BV. We value the stock at INR211/share, which factor s in 150bp regulatory risk to RoE from FY20 in our DCF model. Maintain Buy.
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