NTPC will bounce back once issue completes: Antique

Dhirendra Tiwari, research head, Antique Institutional Equities, says that right now NTPC is seeing more of a technical climb down and the stock will perform once the issue is over. The growth story of the company still remains intact.

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Below is the edited transcript of his interview to CNBC-TV18.

Q: Since NTPC issue has been announced yesterday the stock has been under some degree of pressure as often happens with these offers for sales. Do you think for NMDC once the offer is done, the stock might start performing again?

A: The stock will perform. Right now it is more of a technical climb down in the stock. Fundamentally, the story remains good and once the issue is over one could expect some pick up in the stock price. NTPC is amongst the best players within the power utilities in India. It has about 14,000-15,000 megawatt of power projects under construction and most of these power projects have coal availability with them. I think the long-term story remains intact. The stock is down primarily due to the issue and once it is over, we will see some pick up in the stock price as well.

Q: Are valuations at multi-year lows, at under 1.5 times book?

A: As per our estimates the valuations are at about 1.6 times FY13 book which is a significant correction from an average of over 2 times. We are seeing valuations at multi-year low. Four-five years back, there was significant growth outlook for Independent Power Producer (IPP) and today NTPC is much better placed with respect to IPPs due to availability of coal.

The plant availability factor is expected to rise above 85 percent which will give significant boost to the incentives, and which will add 2-4 percent on ROEs. I think companies core ROEs would pick up and they would move ahead of 23 percent which was the case three years ago and that should re-rate the stock going forward. I think growth is intact; the ROEs will improve, at the same time valuation is in favour so NTPC at Rs 150 is very well placed. Once the issue is done I would assume significant pick up and the stock to move ahead.

Q: So how would you approach it now, does it make sense to buy it today at Rs 155 hoping that post issue the stock will get back to Rs 175-180 or do you wait for the issue in the presumption that the government will price it below Rs 150 and that is the time to pick it up?

A: If one looks at the reaction in recent times, it has primarily taken into account some kind of discount that government might have offered, say if the issue had happened two months ago. I would presume that the government may not look at a significant discount at Rs 150.

If the investor is willing to take a risk of 4-5 percent then one should buy it now. It doesn't make any difference because at Rs 140-150 range the valuations are very attractive and the government may not look to divest below Rs 140. So the downside risk is very minimal.

A long-term investor should use this opportunity to accumulate. If there is an offer at Rs 140-150, one can go ahead and try to accumulate more from the government's pocket.