NTPC FPO floor price offers 11% upside: Motilal Oswal

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NTPC FPO floor price offers 11% upside: Motilal Oswal

Motilal Oswal has come out with a research report on NTPC's follow-on public offering (FPO). The research firm said valuations looked attractive at FPO price and advised subscribing to the issue.

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Motilal Oswal has come out with a research report on NTPC 's follow-on public offering (FPO). The research firm said valuations looked attractive at FPO price and advised subscribing to the issue.

The FPO of India's largest power generation company NTPC opened for subscription. The floor price for the FPO of 412,273,220 equity shares of Rs 10 each is at Rs 201/share and the issue will close on February 5, 2010. The issue has been subscribed 0.79 times so far, as per data available on the NSE website.

Motilal Oswal report on NTPC FPO -

NTPC's existing operational capacity stands at 31.1GW, with 17.3GW of projects are under construction stage and 10GW (including 6GW of bulk tendering) under bidding stage. NTPC plans to award projects under bidding stage by 1HCY10, increasing its capacity under construction stage to 28GW. Thus, NTPC's installed capacity is slated to increase to 58GW by FY14-16E, entailing a healthy capacity addition CAGR of 14-17%.

NTPC has identified 2.1GW of projects on merchant basis, of which 1GW of projects would be commissioned in CY10 (starting from June-10 onwards). Further, the Ministry of Power has issued a cabinet note to allow NTPC (and other CPSU) to sell 50% out of its 15% unallocated quota for new projects and 25% in the case of existing projects through open market mechanism. Management has stated intent to tie-up significant portion of this available capacity under Regulated return (as home state share of 35%) / CBT mechanism / Open access consumers and only 15-20% to be kept on merchant basis. We believe that merchant
sale of power is positive, while the quantum of upside can be limited.

Valuations attractive at FPO price, subscribe: At Rs206/sh, stock is available at a PER of 18x FY11E EPS of Rs 11.4/sh and 15.9x FY12E EPS of Rs13/sh and P/BV of 2.5x and 2.3x on FY11E (reported RoE of 14.4%) and FY12E (reported RoE of 14.9%) basis, respectively. Floor price offers 11% upside to our target price of Rs 228/sh.

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To read the full report click on the attachment