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V Srinivasan and Amit Patil of Angel Broking write that NTPC, being a public sector company, is governed by the regulated return model. The Central Electricity Regulatory Commission's (CERC) regulations for FY10-14 provide return on equity (RoE) of 15.50% on regulated equity. As per regulations, fuel costs are a passthrough, which protect the company from cost pressures due to increased fuel costs. NTPC has 85% of its overall output tied up under the long-term power purchase agreement (PPA) route (regulated returns), which ensures power off-take and stable cash flows thereof.
Hence, Srinivasan and Patil expect NTPC to register a CAGR of 12.30% and 8.50% in its top-line and bottom-line over FY12-14E, respectively. At the offer price (which is at a 4.60% discount to the price as on February 6, 2013), the stock would trade at 1.3x FY2014E P/BV. Given the attractive valuation (stock trading at 1.3x FY2014E P/BV compared to its 3-year trading range of 1.5x to 2.3x and median of 1.8x), we recommend subscribe on the issue. We have assigned a multiple of 1.5x to arrive at a target price of Rs 163.
Even Microsec has given a subscribe rating to the OFS in its report. According to the research firm, NTPC has strong visibility on business/earnings growth, secure business model and low valuations.
Arihant Capital Markets expects things to improve for NTPC on account of higher capacity additions and improved fuel sourcing. And gives a subscribe rating.
The government is coming out with an OFS of 78.3 crore NTPC shares. The OFS is expected to raise close to Rs 11,350 crore at the floor price of Rs 145 a share. After the OFS, the government’s stake in the company would come down from 84.5% to 75%. The OFS will be held on today.
Reports suggest the NTPC OFS is subscribed 52% till now. As against the offer for 78.32 crore shares, the bids stand at 40 crore shares so far.
NTPC rating unaffected by lower government stake
Standard & Poor's Ratings Services today said that its rating on Indian power utility NTPC (BBB-/Negative/--) is not affected by the Indian government's Offer for Sale (OFS) on a part of its stake in the company.
We expect the government to remain NTPC's majority shareholder and the Ministry of Power to retain administrative control over the board. Therefore, at this stage, we believe that the reduction in the government's shareholding in NTPC to 75% from 84.50% will not change our assessment of the company's 'very strong' link with the government. Our view is based on our criteria for assessing government-related entities. In addition, we do not expect any change in the company's 'very important' public policy role as India's largest power utility, S&P said.
