Buy NTPC; target of Rs 172: Motilal Oswal
Motilal Oswal is bullish on NTPC and has recommended buy rating on the stock with a target of Rs 172, in its September 16, 2013 report.
September 17, 2013 / 15:15 IST
Motilal Oswal report on NTPC:
NTPC's 20gw under construction (on the current base of 41gw) and additional 25gw under development capacities provide strong growth visibility. Company has signed an FSA for 98% of capacity and has access to 5bt of captive coal - a key differentiator in the medium term.FY13 capex at INR200b was up 25% YoY and represents 95% achievement in capex spending v/s budgeted capex (compared to average of 60% in last three years), thus indicating continued momentum. Working capital, as a percentage of revenue, is down to 10% v/s 12% YoY, led by lower receivable days (30 v/s 35 YoY); net DER at 0.5x. CWIP, as a percentage of capital employed, is down to 27% (v/s 34% YoY). Well placed on several fronts - robust business model, reasonable earnings growth, historic low valuation and dividend yield of ~4%. Robust growth on capacity front, generation growth muted: FY13 witnessed the highest-ever capacity addition of 4.2gw, while NTPC is on track to achieve 14gw of additions in the 12th Five Year Plan (v/s 9.6gw in 11th Plan). Also, 20gw of projects are already under construction, while 3.6gw are under bidding, and feasibility reports are approved for additional 20.7gw of projects. Muted generation growth (up 4.5% YoY) was led by lower gas-based generation (down 15% YoY) and lower demand from Discoms (9% of generation loss). Access to 5bt of captive coal reserves; FY14 to be landmark year for fuel security: NTPC signed an FSA for 14.5gw of projects after 2009 (as of now 98% of capacity has LT FSA). FY14 would see a landmark development in the form of commissioning of the first captive mine, Pakri Barwadih. Also, the coal jetty for swifter movement of coal through inland waterway would help its Farakka and Kahalgaon projects - among the most hit due to coal availability. Recently, it was allotted four new coal blocks with 2bt of reserves to cater to 8.5gw of new projects. NTPC has access to 5bt of captive coal reserves now, a key differentiating factor in the medium term. Robust capex spending, working capital tapers off: Company incurred the highestever capex of INR200b, up 25% YoY. This is 95% achievement of the budgeted capex, compared to average 60% in the last three years. FY14 target is INR202b, flat YoY. Reported working capital, as a percentage of revenue, looks up at 14%, (v/s 12% YoY) due to one-time provision of arrears receivable of INR25b. Adjusted for the same, working capital as a percentage of revenue fell to 10% in FY13, led by lower receivable days (30 v/s 35 YoY). Well-placed, reasonable earnings growth and historic low valuation; maintain Buy: Strong near term growth visibility, given large capacity under construction/ development, insulated the business model; 12% earnings CAGR over FY13-15E (with scope of upside) and historic low valuation provide comfort. NTPC has underperformed the indices by 31% (18.4% down in 12 months) and trades at 10x PER and 1.2x P/BV on FY15E basis. Dividend yield of ~4%. Maintain Buy.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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