Buy NTPC; target of Rs 210: FinQuest

FinQuest Securities is bullish on NTPC and has recommended buy rating on the stock with a target of Rs 210 in its October 31, 2012 research report.

“NTPC posted excellent set of numbers in Q2FY13 surpassing ours as well as the consensus estimates for the quarter. Despite being a seasonally weak quarter when the company resorted to plant shutdowns the company managed to post excellent growth in profitability driven primarily by lower fuel expenses and few one off income. Higher interest income on deposits and higher dividends from J.V.s & Subsidiaries also helped the bottom-line growth in Q2FY13. Revenue rose 4.8% Y-o-Y (1.9% Q-o-Q) to Rs 171.68 bn, while the net profit after tax rose 29.6% Y-o-Y (25.8% Q-o-Q) to Rs 31.42 bn.”

Higher availability of domestic coal and therefore lower reliance on imported coal helped the margins, since the power cost fell sharply in Q2F13. Materialization of coal against actual contracted quantity (ACQ) in Q2FY13 was 103.87% as against 88.69% in Q2FY12. The supply of imported coal during the quarter was 1.5 mn tonnes, as against 2.77 mn tonnes in Q1FY13 and 3.90 mn tonnes in Q2FY12. Coal consumption in Q2FY13 increased to 35.50 mn tonnes as compared to 32.10 mn tonnes in Q2FY12. However sequentially it was lower by 7%. Thus improved domestic coal availability, which is cheaper than imported coal helped the power cost to fall by 6.7% Y-o-Y (6.3% Q-o-Q) to Rs 99.33 bn. The overall operation cost fell 2% Y-o-Y (3.5% Q-o-Q) to Rs 118.95 bn in Q2FY13 and that caused the EBIDTA margins to improve 480 bps Y-o-Y (390 bps Q-o-Q) to 30.7%. The absolute EBIDTA rose 24.1% Y-o-Y (16.8% Q-o-Q) to Rs 52.73 bn.”

“We believe the company is relatively insulated from all the ills facing the power sector as it has been accorded priority status by Coal India for fuel supply. We also do not foresee any problem for the company from weak financial status of the state power distribution utilities. Thus we maintain our positive outlook on the stock and maintain our ‘BUY’ rating on the stock with target price of Rs 210. At CMP of Rs 167, the company's stock trades at PE of 11.9x and 11.1x FY13 and FY14 EPS of Rs 14.1 and Rs 15.1 respectively. It trades 1.7x and 1.5x FY13E and FY14E book value per share of Rs 97.8 and Rs 108.4 respectively. In order to arrive at our target price of Rs 210 per share we take the average of the value derived from the book value method as well as the SOTP method valuing the core business using DCF approach. At 2.2x book value for FY13E the stock value would come in at Rs 215 while using the SOTP method the stock value would come in at Rs 205. We arrive at our target price of Rs 210, assigning equal weightage to P/BV and SOTP methods,” says FinQuest Securities research report.

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