NTPC OFS may not interest FIIs much: Tulsian

The empowered group of ministers has approved the big ticket NTPC offer for sale which will be held on Thursday. The floor price of the issue will disclosed tomorrow.

Divestment secretary said that the government is looking to raise a whopping Rs 12,000 crore from the NTPC stake sale. This is a considerable portion of the government's FY13 divestment target of Rs 30,000 crore. The government sources said that NTPC offer for sale will be at a discount.
Meanwhile, the government today said that it raised Rs 3,140 crore from the successful Oil India stake sale. The stake sale evinced good interest from FIIs who were allotted 60.4 percent of the shares on offer.
Also read: OIL issue fetches Rs 3141 cr for govt Below is the edited transcript of Tulsian's interview to CNBC-TV18. Q: What do you anticipate in terms of the discount because in earlier two issues the discount ranged between 5-7.5 percent. Do you expect the same in National Thermal Power Corporation (NTPC) as well?
A: It will not be a cake walk for the government. In NMDC, FIIs had a stake of 0.5 percent and in Oil India FIIs had stake of 1.5 percent but in the case of NTPC they are already sitting on a stake of 4.4 percent. On valuation, if I expect an earnings per share (EPS) of Rs 14 of the company for FY13 then one will not be comfortable to give a double digit multiple. In the past we saw the trend of seen a discount of 5 percent but in this case 78 crore shares are put on the block, with a value of Rs 11000-12000 crore.
This issue calls for extra discount because this issue is little dull, there is no appetite for the power generation company, and the valuation looks stretched at 11-11.5 PE multiple. After taking all this into consideration, I will put an extra 3 percent discount. So, I take 8 percent discount on the today's closing and I expect that floor price will be around Rs 142.

Q: You said 8 percent discount which is a steeper discount given the context that NTPC finds itself in. However, do you actually see foreign institutional investors (FIIs) being significant buyers? There is significant FII interest in the previous offer for sale (OFS) that the government did. Do you see the same for NTPC? Or do you actually see domestic financial institutions having to prop up this issue?
A: The Government will be playing very safe at the fag end of the financial year. They don’t want to see any kind of casualty. Setting the floor price at Rs 142 does not mean that the shares will get sold at Rs 142. If there is good appetite either from the FIIs or from domestic investors, they might fetch Rs 145-147.
Regarding FIIs, I don’t think they will be too keen. However, just to support that argument because they are already sitting on 4.5 percent stake in the company, the insurance companies and Life Insurance Corporation (LIC) have already started mobilising money. Many of the companies have exited from the stock totally.
Just to give an example, two insurance companies have totally exited from Tata Global. Even LIC has sold over one crore shares in Tata Global in these last couple of months. Not that the quantum is too big, but even the sale by those two insurance companies and LIC may have mobilised them at about Rs 700-800 crore. So, definitely at the back of the mind, the Government knows that the insurance companies and LIC have to come to lend the support to this issue.
Since LIC is already holding 6.2 percent stake in the company out of 7 percent held by the financial institutions and banks, so they have their limitations. They won’t be putting much money in the issue. So, definitely the response from the FII will be lukewarm and I expect that over 60 percent of the issue needs to be garnered by the local insurance companies and LIC. Q: The Cabinet Committee on Economic Affairs has finally approved the mechanism for price pooling for coal. The modalities will be worked out between the coal and the power ministries but an in principle approval has been given by the cabinet. What will this mean?
A: One has to see the broad contours but if one sees the deadlock getting broken then it is positive for the power generation company because ultimately they want the feedstock. Coal India is the only authority which can procure the coal in the efficient way from the international market. So, ultimately the pooling price on what modalities all is calculated and worked out but overall it will be seen quite positive for the power generation company which will largely help maybe 15-20 companies on a standalone basis and on the integrated basis those who are operating in this field. Q: Will this all be good news for NTPC? Will this actually perhaps change sentiment a little bit more in NTPC's favour given that the news has broken just ahead of the OFS?
A: NTPC has already stood to gain because of the so many de-allocated blocks. Coal blocks have also been given to them. Despite that, because of the OFS hangover, we have not seen the stocks moving up. Today also, we have seen good news coming in wherein NTPC will be receiving the sum of about Rs 2400-2500 crore. So, the hangover of the OFS will not be factoring in any positive into the share price of NTPC till then.