NTPC - Positioned to weather uncertainties - Religare

We continue to prefer NTPC within our industrials coverage universe on account of its low-risk business model. Further, coal supply issues are likely to recede as imports gather pace in FY14 and FSA disputes with Coal India near resolution. The stock is trading at attractive valuations of P/B 1.3x FY15E, offering 19% upside on our Mar'14 TP of Rs 170. Key risks to our hypothesis stem from negative changes in CERC norms and delays in capacity additions. Maintain BUY.

- Robust commissioning pipeline to aid growth: NTPC has outlined 10GW of capacity addition over FY14-FY17, lending strong visibility to growth. The company looks better placed to achieve its commissioning schedules compared to private power producers who are struggling with their capacity addition plans. We build in a revenue/PAT CAGR of 7%/6% for NTPC over FY13-FY16.

- Increased coal imports and access to inland waterways for Farakka to aid PAFs: Owing to non-availability of fuel (viz. imported coal, with imports down 24% YoY to 9.1mmt), NTPC's PAF declined to 87.63% in FY13 from 88.35% in FY12. The company is targeting coal imports of 16mmt in FY14, of which orders have already been placed for 7mmt. Further, the project for an inland waterway at Farakka (2,100MW) is expected to become operational in Q1FY14, improving PAFs at the station.

- Progress continues on FSAs with Coal India: NTPC recently signed two model FSAs with Coal India and expects to sign FSAs for another ~9GW of capacity (coal supplied through MoUs). A third party has been agreed upon to test the quality of coal.

- Valuations: Our Mar'14 target price of Rs 170 values standalone company at Rs 155/share (Projected Value till FY22E Rs 99 till FY22E; terminal value Rs 98) and Subsidiaries and JVs at Rs 15 (1.2x BV) and OTSS Bonds at Rs 8. At our current estimates P/B of 1.3x FY15E provides upside of ~19%.

Source : Equity Bulls

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