JM Financial
NTPC (Buy)
CMP: ₹158.70
Target: ₹190
NTPC’s Q117 adjusted net profit, estimated at ₹3,080 crore, grew 16 per cent y-o-y on doubling of incentive income from high plant load factors across units.
State Electricity Boards’ preference for cheaper power is working in its favour, given the low weighted average tariff of ₹3.12/kWh. FY17-20 presents a period of high capitalisation of under-construction capacity with addition of 4-5 GW annually. With 20 GW of under-construction capacity to commission by FY19-20, NTPC will add 40 per cent of its existing 40 GW commercial base, in the next 3-4 years. Since this entire capacity has signed power purchase agreements at regulated RoEs, earnings growth will closely follow project capitalisation.
We find NTPC attractive at 1.3x FY18 book value, given: a) the regulated RoE-based earnings visibility; and b) high growth in FY17-20 from potential doubling of regulated equity base. We upgrade our target price to ₹190, factoring in a lower risk-free rate.