Buy NTPC; target of Rs 185: Motilal Oswal

NTPCgrp (NTPC group) is likely to achieve CoD (commercial operation date) of 2,155MW coal capacity in FY17E. Of this, 1,355MW has already beencommissioned. Kudgi’s first unit of 800MW is likely to get commissioned by October 2016 as it has overcome project bottlenecks (e.g. railways siding, CHP and water availability). CoD will be achieved within FY17E. The CoD targeted is lower than our estimate of 3,150MW. In addition, 760MW solar capacity will be commissioned. There will be spillover of CoD in FY18 for unit 2 of 800MW at Kudgi and 195MW at Kanti. Hence, there is some risk to capitalization of INR 282b assumed in our model for FY17E.

NTPC has one of the best business models in the Indian power sector as RoE is assured and revenue is guaranteed by a tri-partite agreement with the RBI. NTPC is in the midst of major capacity expansion. Regulated equity, a key earnings driver, will grow at a CAGR of 14.9% to INR 829b. We expect NTPC grp’s EPS to grow at a slower pace than regulated equity, but achieve healthy five-year CAGR of 10% (over FY16-FY21) to INR 19.5/share in FY21E. We value the stock at INR 185/share based on 1.5xFY18E book value. Maintain Buy.