NTPC rallies 7% in 4 days, nears 52-week high on strong growth outlook

Power demand will continue to grow from January to June owing to summer demand

Shares of NTPC hit over three-month high of Rs 181.90, up nearly 2 per cent on the BSE in Thursday's intra-day trade. The stock of the state-owned power generation company twas rading higher for a fourth straight day and has rallied 7 per cent during the period on strong growth outlook. It was quoting close to its 52-week high level of Rs 182.80, touched on November 1, 2022.

In the past one month, NTPC has outperformed the market by surging 10 per cent as compared to 1.1 per cent decline in the S&P BSE Sensex.

NTPC is the largest power generation company in India with an installed generation capacity of 68.96 GW (including JVs), constituting around 17.2 per cent of the total installed power generation capacity in the country as on March 31, 2022.

The group is a major player in coal-based thermal generation in India. Over the years, the share of coal-based thermal capacity of the group, out of the total capacity of coal-based thermal plants in India, has increased. Besides, it is well diversified in terms of customer base, type of fuel used for generation, and geographical spread of its capacity.

Power generation in the past two months (January - February, 2023) has seen double-digit growth (10.6 per cent YoY), though some moderation happened in February (8.3 per cent YoY). Demand continues to grow from January to June of the year, owing to summer demand.

"While all-India thermal generation growth for Jan and Feb ’23 has been at 8.7 per cent, NTPC's thermal unit generation has grown by 10.8 per cent YoY. NTPC's thermal units reported 81.3 per cent plant loan factor (PLF) on average (YTD PLF at 75.6 per cent) for Jan-Feb ’23, and might hit higher PLF going ahead," analysts at Emkay Global Financial Services said in a power sector report.

Renewable Energy (RE) monetization is expected in Q4FY23. Recently, NTPC transferred 15 RE assets to NTPC Green Energy Limited. NTPC intends to tender 5/6GW of coal plants over the next ~2 years. Given the huge under-utilized coal capacity (current PLF in the 75-80 per cent range, while NTPC units have achieved 92-93 per cent PLF earlier, on annual basis), the brokerage firm believe any strong uptick in demand in the medium term stands to benefit NTPC.

Meanwhile, NTPC aims to add more than 5 GW of new commercial capacities annually in the next couple of years, which we believe would drive a decent 10 per cent/12 per cent CAGR in regulated equity/PAT over FY21-24E, brokerage firm Sharekhan said.

The management has guided for robust growth in regulated equity, which makes us optimistic about the strong earnings growth potential for NTPC over the next couple of years. Moreover, a potential reduction in overdue amount from discoms would strengthen NTPC’s balance sheet, it added.

Moreover, the government’s power sector package of over Rs 3 trillion in the Budget would help power discoms clear dues of power generation and transmission companies. This would reduce power sector’s receivables and strengthen companies’ balance sheet.

“NTPC’s risk-averse regulated business model provides earnings growth visibility/RoE improvement and RE expansion would drive gradual re-rating of the stock as it would allay concerns on the ESG front. Additionally, potential monetisation of its RE and power trading subsidiaries could further improve shareholders’ returns in the coming years,” Sharekhan said.