Buy NTPC, target price Rs 122: Emkay Global

Emkay Global has given a buy rating to NTPC Ltd with a 12-month target price of Rs 122. The share price moved up by 0.94 per cent from its previous close of Rs 96.10. The stock’s last traded price is Rs 97.

The brokerage has pruned its earnings estimates for FY21/22 to factor in a one-time discount of Rs 13.6 billion offered to the discoms and lower capacity addition for FY21 (4.8GW in FY21 vs. ~5.5GW earlier). It expects strong capacity addition during FY22/23.

Investment Rationale

For FY21E, the brokerage has lowered its capacity addition outlook for NTPC to 4.8GW vs. 5.5GW earlier, factoring in the impact of the lockdown and low availability of workforce, which would postpone a few of its projects to FY22. For FY22E, we expect NTPC to add 5.4GW capacity.

The brokerage cut its earnings estimates for FY21/22 by 16.8 per cent/8.5 per cent to factor in a one-time discount of Rs 13.6 billion offered to the discoms and downward revision in capacity addition for FY21. However, the brokerage continues to maintain its positive view mainly due to attractive valuations of 0.8 times FY22E P/B and risk-averse regulatory business model. The company is also offering a dividend yield of almost 4.5 per cent. Regulated equity is expected to see a CAGR of 10.2 per cent over FY20-23. The brokerage maintains the buy rating, with a revised target price of Rs 122 (vs. Rs120 earlier).

Key risks include any further delay in capacity additions and lower incentives.


Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 25412.39 crore, up 3.89 per cent from last quarter sales of Rs 24459.70 crore and down -.31 per cent from last year's same quarter sales of Rs 25491.04 crore. The company reported net profit after tax of Rs 3113.61 crore in the latest quarter.

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 25412.39 crore, up 3.89 per cent from last quarter sales of Rs 24459.70 crore and down -.31 per cent from last year's same quarter sales of Rs 25491.04 crore. The company reported net profit after tax of Rs 3113.61 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 51.02 per cent stake in the company as of March 31, 2020, while FIIs held 12.64 per cent, DIIs 33.56 per cent and public & others 2.78 per cent.