Buy NTPC; target of Rs 220: JM Financial

JM Financial's research report on NTPC

NTPC’s 4QFY18 adjusted net profit stood at INR 34bn (+5% YoY), a jump of 51% QoQ as losses from coal related shortage have halved to INR 2.5bn from 3Q18. As highlighted in our earlier reports, the issues related to coal shortages in newly-commissioned plants has been arrested as reflected in Mar-April’17 plant availability (PAF). We expect the coal situation to improve by 1H19 given efforts by NTPC and measures taken by Power, Coal and Railway Ministries (detailed report). The current scenario of rising power demand strengthens our long-term thesis of NTPC benefitting from capacity additions and improving PLFs. We expect NTPC to add 4-5GW annually in FY19 and FY20 based on company guidance and CEA timelines. This will result in c.40% addition to its installed base and almost double its regulated equity base in the next 2-3 years. We find NTPC delivering 12% earnings CAGR despite assuming 18% core RoE (vs. a run rate of 20%).

Outlook
With inexpensive valuations of c1x FY20 BV, we reiterate our BUY rating with a TP of INR 220.

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