NTPC OFS, a good entry point says Microsec
Microsec has come out with its report on NTPC OFS (Offer for Sale) issue. According to the research firm, the Company has strong visibility on business/earnings growth, secure business model and low valuations. So one can subscribe to this issue.
February 07, 2013 / 12:42 IST
Microsec has come out with its report on NTPC OFS (Offer for Sale) issue. According to the research firm, the Company has strong visibility on business/earnings growth, secure business model and low valuations. So one can subscribe to this issue.
NTPC, Maha Ratna Company, was incorporated by government of India in 1975 as central thermal based power generation utility. It is the largest power generator in India with an installed capacity of 39.2GW and contributes 30% of the electricity generation in India. Government of India has cleared the proposal to disinvest a 9.5% stake in NTPC. The sale in NTPC of around 78.3 Cr shares is likely to be through the offer for sale (OFS) route and could fetch the government close to Rs 120 bn. Post the announcement of divestment, the stock has corrected 10%. At these levels, valuations are reasonable coupled with recent positive developments such as its proposed FSA with CIL, restoration of its coal block augur well for the company.NTPC has a strong payment escrow security mechanism. In case of non-payment of receivables from the SEBs after 90 days grace period, NTPC can directly recover the dues from Central Government grants to the respective states. NTPC realized 100% payment of bills from the customers for 8th successive year.NTPC plans capacity addition of 4.2GW in FY13, of which 2.7GW is already commissioned in YTDFY13 - its highest capacity addition in a year. In the 12th Plan period, NTPC plans to achieve capacity addition of 14GW, in line with the Central Electricity Authority's (CEA) estimate. Of this, 13.2GW is expected over FY13-16, an average capacity addition of 3.3GW/year. This compares with an average of 1.5GW/ year over FY82-07, which moved up to 2GW in 11th Plan. NTPC is witnessing an orbit change in capacity addition under the 12th Plan.NTPC is likely to sign a Fuel supply agreement (FSA) with coal India, despite its disagreement with CIL over accepting coal under two types of FSAs at the same plant. NTPC plans to attain 90% PAF for its existing/upcoming projects through a mix of linkages, captive mine production (37m tons by FY17, beginning from 3m tons in FY14) and 20-25m tons of imports (40-45m tons of domestic coal equivalent). Given that NTPC's PPA structure allows fuel cost as pass-through and the progress on its captive coal block, we remain upbeat on fuel supply security.NTPC has shown a robust performance in 9MFY13 in terms of operational efficiency and capacity addition. Going ahead, we believe front loaded execution will lead to accretion in regulated assets and improve RoEs. This coupled with being a regulated play with least fuel risks means NTPC deserves a re-rating in the medium term. The proposed OFS by the government is the good entry point.NTPC is quoting at historic lows on the back of underperformance to benchmark indices over the past 12 months. Government has attractively set a floor price of Rs 145per share. The price set is at a discount of 4.61% at the closing price on 6th February, 2013. The Company has strong visibility on business/earnings growth, secure business model and low valuations. Therefore we recommend a "SUBSCRIBE" to the OFS," says Microsec research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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