Arihant capital advises to subscribe to NTPC OFS issue

Arihant capital markets has come out with its report on NTPC OFS (Offer for Sale) issue. According to the research firm, things are expected to improve for the company on account on account of higher capacity additions and improved fuel sourcing. One can subscribe to this issue, says Arihant capital.

"Government of India (GoI) has set floor price for NTPC's offer for sale (OFS) at Rs 145 per share, which is at ~5% discount to current market price of Rs 152 per share. GoI is offloading 9.5% of paid up capital of company (78.33cr share) in the company and will mop up ~Rs 11,400cr. Government currently holds 84.5% stake in the company, which will come down to 75% after OFS.

NTPC in recent times has seen its pace of capacity additions picking up. Company had targeted 4.2GW of power capacity addition in FY13 and thus far it has added 2.7GW-its highest additions in a year. Going forward, during 12th plan period, it has planned to add 14GW of capacity, implying average addition of 2.8GW per year. This compares with average capacity addition of ~1.95GW during 11th five year plan period. Notably, significant amount capacity additions happening over 12th plan period will be due to delay in commissioning of capacities during 11th plan period.

NTPC's coal based PLF's declined in FY12 due lower coal supply from Coal India and maintenance related shut downs in some of the plants. However, situation has improved in FY13 due higher output and supply from Coal India, whose coal production grew by 7.2%. This has enabled NTPC to increase its PLF to more than 85% in FY13. Further, with government of India's approval to coal pooling mechanism, sourcing of coal likely to improve going forward and this should enable the company to increase PLFs near 90%.

Earlier government, in the back drop coal mine scam, had de-allocated coal mines given to NTPC for lack of development on the same. Subsequently, government has reallocated those in recent times. The three mines (Chatti-Bariatu, Kerandari and Chatti-Bariatu (South)) have an estimated reserve of 826mn tonnes and are essential for fuel availability for some of the newer projects.

NTPC has underperformed broader markets by more than 25% due to lower fuel sourcing, lower capacity additions, captive coal block de-allocation and lower PLFs. However company's performance has been satisfactory in all counts thus far in FY13. Going forward we expect things to improve for the company on account on account of higher capacity additions and improved fuel sourcing. At floor price of Rs 145 the stock would trade at P/E(x) of 10.9x and P/B(x) of 1.5x its annualised FY13 numbers, which is near its historical lows. We recommend subscribe to NTPC's offer for sale," says Arihant capital markets research report.

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