On coal availability at some plants, JM Financial expects the situation to improve by the first half of FY19, considering the efforts by NTPC and the power, coal and railway ministries.
The brokerage added that the current scenario of rising power demand strengthens NTPC’s long-term prospects, which may be benefiting from capacity addition and improving plant load factor (capacity utilisation). While the above-stated concerns have weighed on the stock, at the current levels, most negatives remain priced in while positives such as rising demand, continued capacity expansion and potential of acquisition driving earnings are ignored.
For instance, the pace of commercialisation of new facilities as seen by NTPC in FY18 is expected to continue in the current and next fiscal years as the company is expected to add 4,000–5,000 megawatt (MW) capacities in FY19 and 5,000–6,000 MW in FY20, leading to a significant jump in regulated equity (which is eligible to earn RoE) from the current levels. Liquidation of stressed thermal power assets by bankers may boost prospects as NTPC may be a key consolidator given its strong balance sheet.
Bank of America Merrill Lynch recently reiterated its buy rating on NTPC and said every 1,000 MW of power assets acquisition translates into a per cent increase in earnings. Given the backdrop, the correction has made valuations attractive. Rupesh Sankhe at Reliance Securities said the stock is trading at a book value of 1x, which is a historic low. This is because capacity addition, improving coal supply and jump in regulated equity will accrue positives. On an average, analysts expect NTPC’s earnings to grow at a compounded annual rate of 19 per cent over FY18-FY20.