Improving coal availability, operational efficiencies and inexpensive valuations make the stock attractive.
In spite of a 21 per cent correction, the NTPC stock outperformed the Sensex last year. It remains a top pick among utilities and is considered a safe investment, especially in urrent conditions. Its leading positioning in the industry, strong balance sheet and stable growth strengthen the investment argument. And, it will be one of the biggest beneficiaries of the Shunglu committee report on reforms in the power sector.
At the current Rs 157, the stock is trading at reasonable valuations, discounting 12 times its estimated earnings and 1.7 times its book value in 2012-13. "The stock is trading at its historical lowest valuation in all parameters. We feel any price below 165 is a good buy," says Rabindra Nath Nayak, who tracks it at SBI Cap Securities.
| STABLE GROWTH | |||
| in Rs crore | FY11 | FY12E | FY13E |
| Sales | 56,532 | 63,316 | 71,707 |
| Growth (%) y-o-y | 16.9 | 12.0 | 13.3 |
| Net profit | 8,034 | 9,432 | 10,542 |
| EPS (Rs) | 9.7 | 11.4 | 12.8 |
| RoE (%) | 12.3 | 13.2 | 13.6 |
| PE (x) | 16.1 | 13.7 | 12.2 |
| PBV (x) | 1.9 | 1.7 | 1.6 |
| Source: BNP Paribas Securities E: Estimates | |||
Lowering debtor burden
The Shunglu committee was formed to look into financial conditions of state electricity boards and suggest correctives. One major suggestion is a special purpose vehicle having a line of credit from the Reserve Bank of India, to buy distressed loans of distribution companies (discoms). NTPC is expected to be the biggest beneficiary of this, since it has an exposure of 17 per cent of its capacity to states facing financial problems relating to power. Its receivables more than doubled between 2008-09 and 2010-11 to Rs 8,400 crore, while sales grew 34 per cent in this period. If, as the company aims, it is able to reduce its debtor days from 67 days in the first half of 2011-12 to under 60 days in the coming months, it will be able to release Rs 1,200-1,500 crore from working capital and improve returns.
Efficiency
Things are also improving from the operational point of view. During the first half of the current financial year, NTPC got severely impacted due to planned maintenance, load-shedding by distressed discoms and serious issues of coal supply for some projects. As a result, power generation in the first eight months of 2011-12 was down five per cent annually over the previous period.
However, the increase in coal availability helped the plant load factor improve to 87 per cent in November compared to 78 per cent in October. "During the first half of the current financial year, the company completed the planned maintenance of its plants and has improved availability during the second half. In the December quarter, on the back of better schedules from the utilities, it has witnessed an 11 per cent rise in generation. It is expected to show a good second-half performance," says Nayak.
Analysts expect NTPC to recoup the losses in generation in this quarter and the next. On a full-year basis, it should be able to increase power generation about four-five per cent and grow net profit by 17-18 per cent in 2011-12 over the previous year, backed by efficiencies and incentives. In 2012-13, the company will add 4,000 Mw of capacity (it is now 34,600 Mw), which should give another five-six per cent growth in generation.
However, NTPC’s growth next year will be largely influenced by the actual PLF, given that the coal supply issue, though resolved partly, continues to be a concern. Also, it will have to resolve the problem at its 2,600-Mw Korba power station in Chhattisgarh, where state authorities have asked the company to cut production by half for having fasiled to make the needed arrangement on ash disposal.
