Subscribe to NTPC`s OFS issue: Angel Broking

Angel Broking has come out with its report on upcoming NTPC OFS (Offer for Sale) issue. The research firm has recommended investors to "Subscribe" to this issue, in its report dated February 06, 2013. According to Angel, expect NTPC to register a CAGR of 12.3% and 8.5% in its top-line and bottom-line over FY2012-14E, respectively.

"The government is coming out with an Offer For Sale (OFS) of 78.3cr equity shares of NTPC. The OFS is expected to raise close to Rs 11,350cr at the floor price of Rs 145/share. After this OFS, the government's stake in the company would come down from 84.5% to 75%. The OFS will be held on February 07, 2013. Investment Arguments.

Going forward, NTPC's growth is expected to be driven by the huge capacity addition planned by it. The company envisions having 51,000MW of capacity by FY2017. In all, the company targets to add ~14,038MW of capacity in the Twelfth Plan (FY2012-17), of which 4,170MW and 2,718MW of capacity is planned for addition during FY2013 and FY2014 respectively. The robust capacity addition is expected to result in 15% CAGR in regulated equity to Rs 36,003cr over FY2012-14E.

NTPC, being a central public utility, is governed by the regulated return model. The CERC's regulations for FY2010-14 provide RoE of 15.5% on regulated equity. As per regulations, fuel costs are a pass-through, which protect the company from cost pressures due to increased fuel costs. NTPC has 85% of its overall output tied up under the long-term power purchase agreement (PPA) route (regulated returns), which ensures power off-take and stable cash flows thereof.

We expect NTPC to register a CAGR of 12.3% and 8.5% in its top-line and bottom-line over FY2012-14E, respectively. At the offer price (which is at a 4.6% discount to the price as on February 06, 2013), the stock would trade at 1.3x FY2014E P/BV. Given the attractive valuation (stock trading at 1.3x FY2014E P/BV compared to its three year trading range of 1.5x to 2.3x and median of 1.8x), we recommend Subscribe on the issue. We have assigned a multiple of 1.5x to arrive at a target price of Rs 163," says Angel Broking research report.

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