Buy NTPC; target of Rs 188: ICICI Direct

NTPC was able to report muted growth in generation to the tune of 1% YoY growth. PLFs for the coal based station declined from 77.27% in Q2FY16 to 74.65% in Q2FY17 whereas the same for gas based stations declined from 25.73% in Q8FY16 to 23.57% in Q2FY17. Consequently, gross generation was up 1% in Q2FY17 to 60.59 billion units. Similarly, units sold also grew 1% to 56.48 billion units vs. our estimate of 56.64 billion units. Tariff per unit came in at Rs 3.25/unit as coal prices were higher (hike in prices of coal & increase in railway freight charges, which is a pass through) vs. our estimate of Rs 3.20/unit for Q2FY17. Going ahead, with increase in capacity over 10000 MW in FY17E-18E, we expect energy sold to grow at a CAGR of 6.5% to 27445 crore units in FY16-18E and expect total capacity to reach 52888 MW by end of FY18E.

With capacity addition target on track and renewed vigour on the renewables capacity addition, we believe NTPC is likely to report steady and consistent performance in the overall power space. We expect NTPC’s capacity will reach 52888 MW in FY18E from 47608 MW in FY16. With a strong balance sheet profile and enough room to achieve its set milestones, going ahead, we value the company at 1.5x its FY18E ABV to and assign a fair value of Rs 188.