Buy NTPC on dips; brokerage firms raise target price to Rs 213 post Q3 results

Earlier this week, India's biggest electricity producer said it has won a tender to supply 300 megawatts (MW) of electricity to Bangladesh for 15 years.

Bangladesh Power Development Board (BPDB) had invited tenders for supply of 500 MW power from India for short-term (June 1, 2018, to December 31, 2019) and long-term (January 1, 2020, to May 31, 2033).

NTPC has delivered a weak performance for the quarter ended December largely weighed down by wage provision to the tune of Rs 450 crore; and lower plant availability at 83 percent leading to disincentive of Rs4bn on account of shortage of coal at Mauda, Kudgi, Solapur.

Looking ahead, analysts at top brokerage firms expect NTPC’s business to improve further backed by higher capacity commercialisation, better fuel availability and likely improvement in demand owing to UDAY scheme.

“Looking ahead, we expect NTPC to add commercial capacity of 5GW and 6GW in FY19E and FY20E, respectively which would lead to a significant jump in regulated equity from the current level of Rs505bn,” Reliance Securities said in a note.

“We continue to consider NTPC as one of the best-placed companies in terms of fuel security, as most of its capacity off-take will continue to be through long-term Power Purchase Agreements (PPAs),” it said.

The domestic brokerage firm maintains a buy recommendation on the stock with a revised target price of Rs213 from Rs192 earlier which translates into an upside of 31 percent from current levels.

Here’s what other brokerages are recommending:

Motilal Oswal: BUY| Target Rs210

Motilal Oswal maintains a buy call on NTPC with a target price of Rs210 post Q3 results. The domestic brokerage firm expects the consolidated PAT to grow at a CAGR of 13 percent over FY18-20E and RoE to improve by around 110bp, despite factoring in a cut in regulated RoE in the FY20 tariff period.

Emkay Global: BUY| Target Rs207

Emkay Global maintains a buy rating on NTPC with a 12-month target price of Rs207 post Q3 results. The brokerage firm said that it has marginally pruned its earnings estimates for FY18E and FY19E to factor in lower PAF across few assets.

“We have rolled over our valuation to FY20E, and raise our target price marginally to Rs207 to factor in the front-ended commercialization of assets, which would drive its earnings going ahead,” it said.