Buy NTPC; target of Rs 140: Sharekhan

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Sharekhan's research report on NTPC

Q3FY2021 performance was steady with a 24% y-o-y increase in adjusted PAT to Rs. 3,308 crore (in line with consensus estimates). Earnings growth was driven by a 14.5% y-o-y increase in regulated equity base, 35% rise in surcharge income to Rs. 565 crore and higher PLF incentive income of Rs. 76 crore (versus just Rs. 9 crore in Q3FY20). The management has guided for strong commercialisation of 5,074 MW for FY2021E and 6,000 MW for FY2022E and eyes lower fixed cost under-recoveries of Rs. 350-400 crore by March-2021. Board declared interim dividend of Rs3/share. A risk averse regulated business model provides earnings visibility (19% PAT CAGR over FY2021E-FY2023E) as a robust commercialisation target would drive strong growth in regulated equity base.

Outlook

We maintain a Buy on NTPC with an unchanged PT of Rs. 140, as valuation remains attractive at 0.7x its FY2023E P/BV (48% discount to historical multiple) despite strong earnings visibility, decent RoE of 13% and dividend yield of 6-7%.

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