Brokerages remain positive on NTPC, see 32-42% potential upside; govt stake sale remains overhang

Motilal Oswal remained positive on NTPC from a medium-term perspective led by the pickup in capitalization and the decline in fuel under recoveries

November 23, 2019 / 08:03 AM IST
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Brokerages remained positive on India's largest power generation company, NTPC, on attractive risk-reward, pickup in capitalization and decline in fuel under recoveries.

Morgan Stanley has upgraded its rating on the stock to overweight as risk-reward turned attractive.

The global brokerage house has a target price for the stock at Rs 152 per share, implying 32 percent potential upside from current levels.

"The risk-reward turned attractive as two out of three concerns are either reversing or are known; and steady commissioning of projects should drive earnings," the research firm said.

"Fixed costs under recovery has been reducing, and the impact of regulations is known though the potential stake sale by the government remains an overhang," it added.


Motilal Oswal also said the uncertainty over the transaction value and continued government divestment could be an overhang on the stock in the near term.

However, the brokerage remained positive on NTPC from a medium-term perspective led by the pickup in capitalization and the decline in fuel under recoveries – which should drive 14 percent earnings over FY19-21.

"We maintain buy with a DCF-based target price of Rs 163, implying 42 percent potential upside from current levels," said Motilal Oswal.

the Cabinet Committee of Economic Affairs (CCEA) has given an in-principal approval (link) for the sale of the Government of India (GoI)'s holding in NEEPCO (100 percent - GoI holding ) and THDC India Ltd (75 percent holding) to NTPC.

The acquisition of these new capacities (including under-construction ones) adds 5 GW (10 percent of NTPC capacity) of mostly hydro power assets to NTPC's largely coal dominated asset base, said JM Financial.

"THDC is the better assets with superior return on equity (RoEs) while NEEPCO is sub-optimal and, hence, its acquisition value should also reflect the same. Also, a higher debt-funded acquisition would be more value accretive for NTPC, given it has access to low cost debt," it added.

The brokerage said both additions would be earnings accretive for NTPC at the fair value. With NTPC’s strong balance sheet (FY19 net D/E at 1.3x) and annual profits of Rs 10,000-12,000 crore, these are easily funded from two-three years of internal accruals.

THDC (around 1.5GW) and NEEPCO (around 1.45GW) are broadly a hydro-dominated portfolio, with the combined hydro capacity of 2.3GW.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Nov 23, 2019 08:03 am

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