The Union Government of India bestowed Maharatna status to National Thermal Power Corporation Limited (NTPC) in May 2010, making it India's largest energy producing company. The company has also expanded into categories like consulting, power trading, power professional training, rural electrification, ash utilisation, and coal mining. On the NSE, the company's shares have grown by 53.27 per cent in the previous year, and also have gained by 24.56 per cent year-to-date (YTD). The stock has gained 11.08 per cent in the previous six months and 16.43 per cent in the last month and is now trading at Rs 156 per share. The brokerage firm ICICI Securities has placed a buy call on the stock for a target price of Rs 190 in a target frame of 12 months.
Key investment rationale for NTPC as per ICICI Securities
- NTPC has set aggressive renewables long term capacity addition target of 60000 MW by 2032, which was earlier pegged at 30000 MW. The company currently has 6500 MW of renewable projects in various stages. Out of this, 1600 MW has been commercialised and ~3500 MW will come under commissioning in the next 18 months. The company expects to spend ~40% of total capex planned for FY22, FY23 on renewable projects. This share is going to further increase from FY25 beyond, which indicates very strong addition in renewable portfolio from FY24 onwards The company is expected to generate IRR's in the range of 11-12% despite low renewable tariffs, which we believe is commendable.
- The company may also unlock value in its renewable arm via an IPO over FY23-24, which will further provide a fillip to valuations.
- The company has also started making inroads in other avenues of green energy like hydrogen. NTPC awarded project of 'Standalone Fuel-Cell based Micro-grid with hydrogen production using electrolyser' at NTPC Simhadri. On the other hand, the company recently issued tenders and has invited online bids from electrolyser technology providers, with whom the company intends to participate in upcoming tenders on green hydrogen. This tender intends to select electrolyser technology provider(s) for two years for polymer electrolyte membrane (PEM) technology of 400 megawatt (MW) and non-PEM technology of 600 MW.
Buy for a target price of Rs 190
The brokerage has claimed that "With strong focus on alternative energy spectrum NTPC may be able to break the underperformance of the last decade and undergo a re-rating. We change our rating from HOLD to BUY. We value NTPC at Rs 190 i.e. 1.4x FY23E book value."
Muted economic recovery to keep blended PLFs lower is the key risk for the stock according to ICICI-Sec.
The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.