NTPC OFS attractively priced: Antique

In an interview to CNBC-TV18, Rahul Modi, Research Analyst at Antique Stock Broking shared his reading and outlook on NTPC's offer for sale.

Below is the verbatim transcript of an interview aired on CNBC-TV18. Q: Talk about the indicative price that has been reported. If it is at Rs 145, what would your recommendation be on the offer for sale for NTPC? A: As per the indicative price at Rs 145, it is an attractive investment opportunity that one is getting the stock at 1.4 times price to book one year forward. That is the historic lows of NTPC that one saw in the 2008 crisis.  In terms of fundamentals, we see significant change as to what had happened in the last five years as to what is happening in the next three years. In terms of capacity addition, we are seeing 7.7 gigawatt capacity being added in the first three years of this plan as against 5.6 gigawatt added in the last five year plan. Also Read: UBS Securities positive on NTPC Q: Is it boiling down to just a pure valuation call for you or you are convinced that performance matrix will improve because performance has been quite poor over the last couple of years for NTPC? A: The last three years have not been the best years for NTPC because of low availability number due to lack of coal. However, going ahead we see capacity addition coming through, in fact NTPC would be adding double of what they added in the last five year plan, in the first three years of this plan. That will definitely add to the regulated book giving more of the regulated earnings, which provides stability in the earnings. Fundamentally Coal India has started increasing production and the annual contracted quantity (ACQ) that Coal India supplies to NTPC has been more than 100 percent. So, once NTPC starts importing the coal on time, which had slipped in Q2 of this year, I think one can see 12 percent compound annual growth rate (CAGR) in earnings from FY12 to FY15. Q: Aside from the core valuations like price to book, EV/EBITDA etc. What about a couple of the other parameters like return on equity. Is NTPC an interesting option even for retail on that accord? A: NTPC earns around 13 percent return on equity (RoE) on books and on its operational assets it earns around 24-25 percent return on equity and that is the return on regulated equity. That is phenomenal given the fact that currently other power companies are either on the negative in terms of profitability or just breaking even or being within 10 percent range. So, seeing that regulated players definitely have thumbs-up in terms of the sector and NTPC is one of the favoured players in that. Q: In your conversation to clients do you sense any disappointment on the NMDC experience because that was very well subscribed but post the issue closure some developments happened on pricing etc, which led the stock to go back to that OFS price. Has that sour sentiment for many of the investors who are looking at these issuances? A: Not really because NMDC is more of a commodity play. It has surplus cash so the usages become a big question. However, in case of NTPC, it is going to add capacity in the next ten years and there is a firm roadmap for the next ten years. So, on the basis of the financials, we are very comfortable and we do not see NMDC thing repeating with NTPC.