Buy NTPC; target of Rs 199: Motilal Oswal

NTPC standalone 1QFY17 (NTPCsa) adjusted PAT increased 13% YoY to INR 24b, driven by 17% growth in Core (generation) PAT, while other income declined on utilization of cash in project equity. Declared capacity (DC) increased by 2.7GW and regulated equity increased by INR 54b YoY. During the quarter, 250MW Bongaigaon and 200MW solar plants were added to DC. Core PAT was boosted by provisional PLF incentives of INR 1.53b. 15 units (from 8 stations) reported PLF above 85%. Energy sales increased 10.6% YoY to 60.3b kwh, which is a very strong volume growth in many years. NTPC has been able to improve its merit order dispatch (MoD) position on reducing ECR (energy charge rate). Average tariff was INR 3.12/kwh and ECR was INR 1.92/kwh.  PAT was boosted by INR 1b on capitalization of certain operating expenses under IndAS. 440MW plant at Tanda has been converted into service lease agreement under IndAS as its entire output is supplied to UP.

We have upgraded our PAT estimates by 4-7% for FY17-20E on IndAS accounting change and higher PLF incentives. NTPC’s consolidated EPS is estimated to grow at a CAGR of 11% over FY16-20E. We expect DC to increase at CAGR of 7.5% and Regulated equity to increase at CAGR of 15% over FY16- 21E. RoE is expected to improve from 12.1% in FY16 to 15% in FY20E. We have upgraded the target P/BV multiple from 1.5x to 1.6x on lower cost of equity. The stock is trading at 1.4x FY18E book value. Our revised target price is INR199, an upside of 22%. Re-iterate BUY. For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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.