Buy NTPC; target of Rs 215: JM Financial

JM Financial is bullish on NTPC has recommended buy rating on the stock with a target price of Rs 215 in its research report dated July 28, 2018.

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September 18, 2018 / 14:08 IST

26 Aug, 2025 12:21

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JM Financial's research report on NTPC

NTPC’s 1QFY19 adjusted net profit stood at INR 25bn, +11% YoY vs. 5-6% growth trend of past quarters. This compares with 16%YoY growth in regulated equity as the benefit of capex is now beginning to reflect in earnings growth. During the quarter NTPC witnessed a) reduction in coal under-recovery from c. INR 3.5bn in 3QFY18 to INR 1.3bn as Mauda was the only impacted project, b) fixed cost under recoveries of INR 1.6bn in Unchahar and Badarpur which will discontinue by 2H FY19 and c) INR 2bn fixed cost under recovery from annual maintenance shutdowns which got advanced to 1Q in FY19 vs. 2Q in FY18. Without the shutdown related under-recoveries, we estimate profit growth to have been c.15%. Hence we expect strong growth in 2Q and 3Q FY19 given that the O&M related shutdowns have been completed in advance for many projects in FY19. As highlighted in our earlier reports, the issues related to coal shortages in newly-commissioned plants has been arrested as reflected in Mar-April’18 plant availability (PAF). We expect the coal situation to improve by 1HFY19 given efforts by NTPC and measures taken by Power, Coal and Railway Ministries (detailed report). The current scenario of stable power demand growth strengthens our long-term thesis of NTPC benefitting from capacity additions and improving PLFs.

Outlook

We expect NTPC to add 4-5GW annually in FY19 and FY20 resulting in >12% earnings CAGR despite, assuming 18% core RoE (vs. a run rate of 20%). With inexpensive valuations of c.1x FY20 BV, we reiterate our BUY rating with a TP of INR 215

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