Buy NTPC; target of Rs 260: Sharekhan

Sharekhan's research report on NTPC

Anticipation of a rise in peak power deficit could drive re-rating of NTPC’s core thermal power business. Thus, NTPC’s plan to add commercial thermal power capacities of ~10 GW over three years seems to be a step in the right direction. Thermal capacity additions would drive double-digit growth in the standalone regulated equity base and the same provides earnings growth/cashflow visibility over FY24-25. Moreover, NTPC’s RE expansion plan of 20GW/60GW by FY26E/FY32E would mean meaningful EBITDA contribution from RE portfolio but NTPC’s current market capitalisation does not fully reflect RE potential. In our view, a likely IPO for NTPC Green Energy Limited would help derive better valuation of NTPC RE business and potential value unlocking for investors. NTPC’s focus on new areas of green hydrogen/battery storage would diversify earnings streams in medium to long term.

Outlook

We maintain Buy on NTPC with an unchanged PT of Rs. 260. At CMP, the stock trades at an attractive valuation of 1.3x FY25E P/BV and offers a healthy dividend yield of ~3-4%.

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