Buy NTPC; target of Rs 182: Microsec

Microsec is bullish on NTPC and has recommended buy rating on the stock with a target of Rs 182 in its April 18, 2013 research report.
 
“NTPC, a government-owned enterprise (Government of India’s stake at 75 percent), is India’s largest power generator, with operational thermal capacity of 39.7GW. It is responsible for 17.75 percent of the national capacity and contributes to 27.40 percent of all power generation. NTPC is planning to commission 14GW of projects under the 12th Plan vs. 9.7GW added under the 11th Plan. NTPC is one of the safest bets in the power utility space given the company’s dominant position in electricity generation, better fuel supply arrangements (FSAs) and robust power purchase agreements (PPAs).We expect it to add 14GW of capacity - an average of 3.3GW/year v/s historic average of 1.5-2GW/year. Unlike the past, we believe execution issues will no longer hinder the stock performance. The current market price is not taking cognizance of the growth in capacity and regulated nature of the business. We are initiating coverage on the stock with a “STRONG BUY” rating and a target price of INR 182.”
 
“NTPC has assured coal linkages for 90 percent of installed capacity and it is partly better placed to address incremental fuel requirement given captive mines. It is in a comfortable position when it comes to coal imports given its PPA structure, which allows fuel cost pass-through. We remain upbeat on fuel supply security. In addition to its existing captive blocks, the Ministry of Coal (MoC) has given in-principle approval for allocation of new blocks to feed its upcoming capacity of 8.5GW.  The Company is a regulated utility with CERC determined tariffs allowing it to recover a return of 15.5 percent on a pre-tax basis as per the tariff guidelines, public sector players were exempted from competitive bidding till Jan 2011.”
 
“NTPC has signed PPAs with states for 37GW of fresh capacity before the expiry of the deadline. This ensures that the company is exempted from competitive bidding for 11th FYP plan (14GW) and a better part of 12th FYP plan as well. Hence, NTPC will remain a pure-play regulated model during 12th and possibly 13th plan without the risks of competitive bidding,” says Microsec research report.

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