Emkay Global Bets On This Maharatna Stock For 36% Potential Gains, Details Inside

CMP, Target Price, Returns, Market Cap, & Potential Gains

On July 06, the stock of the company closed at the Current Market Price (CMP) of Rs 138.95 per share. Today, its share price slid nearly 0.82%. The previous close was Rs 140.85 per share. The stock hit the 52-week low on 26 August 2021 at Rs 111.95 per share. The 52-week high was recorded on 19 April 2022 at Rs 166.35 per share. ROE is 12.31%. Investors buying the stock at the CMP could expect 36% potential returns considering the estimated target price of Rs 188 per share.

The stock has given negative returns on short-term investments. In the last 1 month, it has given negative returns of 10.47% & 9.18% in the last 3 months, respectively. In the past 1 year, it has given positive returns of 18.1%, in 3 years 1.79% and in 5 years it has given positive returns of 5.5%, respectively.

Q1FY23 sees strong generation

In Q1, all India generation was up ~17% YoY and ~4.5% on a 3-year CAGR basis. Thermal/RE generation was up 17.7%/26%. Hydro generation was up 6% YoY. NTPC has outperformed all India thermal generation - up 21% YoY vs. 17.7% of the industry (8.3% vs. 4.2% on a 3-year CAGR basis). Strong demand led to NTPC's thermal units clocking PLF above 80% in Q1. This is also the highest Q1 coal PLF since Q1FY17.

H2 is seasonally weak in any fiscal

Typically, peak energy demand in India is 5-8% lower in the second half of any financial year due to the winter, though there are regional differences. Hydro and RE supplies usually see a higher seasonal decline (hydro generation, in general, is down by ~40% in H2 vs. H1, while RE PLFs are also low in H2 by more than 20%). This results in the need to generate more thermal power. In short, despite low demand, owing to low supply from hydro+RE, higher thermal generation is required in H2. On an average, thermal generation has been higher by ~6% during H2 over H1. The trend is similar for NTPC's thermal units as well.

Valuation and outlook

NTPC remains a play on large fossil assets (with robust cash flows), along with strong growth in the RE space. The strong power demand is expected to continue in the medium term, given the strong manufacturing push by the government. NTPC's stock provides ~5% dividend yield. It is expected to add 3-4GW annually for the next few years (coal and RE combined). It is currently trading at ~0.94x/~0.9x PB on FY24E/FY25E, with an RoE of ~12% and an earnings CAGR of 6-7%. The company is planning to float an IPO or invite a strategic investor for its RE portfolio in FY23/24. Our SoTP value stands at Rs188/share (Rs180 earlier) after factoring in DPS in our target. Risks include a significant slowdown in power demand and any delay in project completion.

About - NTPC Ltd

NTPC Ltd is a Maharatna Company under the Government of India. NTPC became a Maharatna company in May 2010. It is India's largest energy conglomerate with roots planted way back in 1975 to accelerate power development in India. Since then it has established itself as the dominant power major with a presence in the entire value chain of the power generation business. From fossil fuels, it has forayed into generating electricity via hydro, nuclear and renewable energy sources. This foray will play a major role in lowering its carbon footprint by reducing greenhouse gas emissions. To strengthen its core business, the corporation has diversified into the fields of consultancy, power trading, training of power professionals, rural electrification, ash utilisation and coal mining as well. NTPC is ranked No. 2 Independent Power Producer(IPP) in Platts Top 250 Global Energy Company rankings.