Buy NTPC; target of Rs 197: Axis Direct

Axis Direct's research report on NTPC

Q2FY18 adjusted PAT grew 12% YoY at Rs 27 bn (vs. our estimate Rs 26 bn) in tandem with 17% YoY rise in regulated equity. Core RoE is still healthy at 20.2% though it contracted ~174 bps YoY due to under-recovery in fuel cost. Company clocked highest-ever quarterly commercial capacity addition of 3.3 GW in the quarter. This will accelerate earnings hereon driven by bunching up of capacity addition (~21 GW is under construction vs. ~52 GW installed).

Outlook

Maintain BUY with TP of Rs 197 on strong earnings visibility driven by 50% rise in regulated equity over FY17-20E and rising RoE on falling CWIP. Key risk to our call is CERC (regulator) lowering regulated RoE below 14% from FY20 vs. 15.5% currently due to lower interest rates and surplus power. A new CERC tariff policy is applicable from Apr’20.