JM Financial

NTPC (Buy)

CMP: ₹158.70

Target: ₹190

NTPC’s Q117 adjusted net profit, estimated at ₹3,080 crore, grew 16 per cent y-o-y on doubling of incentive income from high plant load factors across units.

State Electricity Boards’ preference for cheaper power is working in its favour, given the low weighted average tariff of ₹3.12/kWh. FY17-20 presents a period of high capitalisation of under-construction capacity with addition of 4-5 GW annually. With 20 GW of under-construction capacity to commission by FY19-20, NTPC will add 40 per cent of its existing 40 GW commercial base, in the next 3-4 years. Since this entire capacity has signed power purchase agreements at regulated RoEs, earnings growth will closely follow project capitalisation.

We find NTPC attractive at 1.3x FY18 book value, given: a) the regulated RoE-based earnings visibility; and b) high growth in FY17-20 from potential doubling of regulated equity base. We upgrade our target price to ₹190, factoring in a lower risk-free rate.

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