NTPC Ltd - Downgrade risk to EPS; upgrade to hold on valuations - Emkay

Reco: HOLD
CMP: Rs 138
Target Price: Rs 148

- NTPC's 1Q14 APAT at Rs23.2bn, marginally below estimates mainly due to lower other income. Key adjustment (pre-tax) -Rs2bn previous-year sales

- Core ROE in 1Q14 stood at 5.5% vs. estimate of 5.4%. ROE is lower than 5.75% needed to maintain FY14 core ROE at 23% (same as FY13). ROE lower mainly due to lower coal PAF at 84% in 1Q14 vs. 87.6% in FY13

- Given that imp coal use in the qtr was very low, PAF might improve a bit going forward. We would wait for 2Q14 results (imported coal and post FY09 plant FSA impact in 2Q14) to adjust our FY14/15 numbers which has downgrade risk

- Despite capacity additions, EPS gr. remains doubtful as risk to ROE remains from - 1) Grossing tax (2.5%), 2) PAF (2.2%) and 3) UI (1.2%). Upgrade to Hold on underperformance and valuations but believe the upside is limited as well.

Source : Equity Bulls

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