Target: ₹425
CMP: ₹321.85
NTPC is our top pick in the power sector given its strong earnings growth visibility (expect 11 per cent PAT CAGR over FY23-26E; RoE of 14 per cent), reasonable valuation of 2x FY26E P/BV considering discount versus private power companies and a healthy dividend yield of 3 per cent . NTPC is play on improving capex outlook for thermal power capacities and high growth in RE business.
NTPC plans to add significant thermal power capacities is coming at right timing of peak power cycle. Core thermal power business earns a regulated RoE and a higher capex intensity would drive earnings growth and offer cash flow visibility.
NTPC’s RE expansion plan of 20GW/60GW by FY27E/FY32E would mean meaningful EBITDA contribution apart from improving ESG score.
Power PSUs’ valuations are at a steep discount of 35-40 per cent when compared to private power companies. We expect this gap for NTPC (discount of 45 per cent versus private listed companies) to narrow down, given the favourable dynamics for its core thermal power business supported by rising peak power deficit, high growth for RE and a likely improvement in ESG score. Additionally, a potential IPO for its RE business could further improve shareholders’ returns in the coming years.