NTPC float generates buzz

The National Thermal Power Corporation (NTPC) initial public offer (IPO) is widely expected to get a huge response in the market, with some players suggesting that the IPO could clock in the highest number of applications received in an IPO in recent times.

Referring to the success of the recent ONGC public offer, which attracted a host of dedicated global oil and gas funds, brokers said the NTPC issue will probably see a lot of dedicated power sector funds make an entry into India.

The NTPC IPO is slated to open on September 23, and merchant bankers to the issue are said to have proposed a price band of Rs 30 to Rs 60 per share. The company hopes to mop up around Rs 5,000 crore from the issue, NTPC chairman and managing director C P Jain had recently said.

The NTPC IPO bodes well for the capital markets, wealth managers said, adding that investors are looking for profitable avenues for investment.

Brokers added that given NTPC's balance sheet size, large domestic as well as foreign institutions will find it impossible not to have a sizeable chunk of the stock in their portfolio.

Moreover, the NTPC IPO will help focus some positive attention at last on the Indian power sector, analysts said. A certain segment of the market though is sceptical about the timing of the IPO.

The markets have risen in the last few weeks but volumes have been low, some brokers said.

Interestingly, a brokerage house has advised its clients to stay away from PSU scrips due to the policy issues that go with them.

However, most analysts are positive about the company and said that it should attract good buying attention in the IPO and also post listing.

Srinivas Rao, senior analyst, Motilal Oswal Securities, said, "NTPC is among the largest thermal power players in the world and also the cheapest producer of power in India, selling it for as low as Rs 1.47 per unit to the state electricity boards (SEBs)."

He added that 80 per cent of NTPC plants are located close to coal mines and hence it largely not dependent on public infrastructure (roads and railways) for supplies, and that makes it an extremely efficient producer of power.

Sharad Shukla, head - investment advisory services at IL&FS Investmart, said, "the NTPC IPO should receive a good response from the market." He added that the IPO could have been timed better as investor sentiment with regards to policy matters relating to PSUs is not very high at this point of time.

A senior analyst pointed out that NTPC is the largest power generating company in the country with approximately 19 per cent of India's total installed capacity but the main risk with NTPC is that sales to SEB represent approximately 99 per cent of the company's total sale of power. The company has also reported mixed results for the year ended March 2004.

The book running lead managers to the issue are ICICI Securities, Enam Financial Consultants and Kotak Mahindra Capital Company. NTPC is the first IPO by a power company after the enactment of the Electricity Act, 2003.

NTPC has an installed generation capacity of 22,249 Mw, representing about 19.1 per cent of India's total generation capacity.

The company has 13 coal-based plants with a total capacity of 17,480 mw, seven gas-based plants aggregating to 3,955 mw and three joint venture projects, which have a capacity of 314 mw.

NTPC posted a net profit of Rs 5,260 crore in 2003-04 (representing a 45.8 per cent jump over the previous year) on gross revenues of Rs 25,964.20 crore.

The corporation is planning to use the issue proceeds to fund its capital expenditure programme of Rs 41,522 crore in the next three years. The corporation is planning to add 9,370 mw of generating capacity.