‘Buy’ on NTPC as divestment a a near-term overhang
In the bargain, NTPC management may persuade the government to expedite restoration of its de-allocated captive coal blocks and enable the award for its balance 4.8-GW bulk-tender projects — key requisites for sustaining fuel security and defensive earnings growth prospects for the company.
Further, if the stake sale materialises, free float in the stock would rise to 75%, which is a positive from the perspective of liquidity.
Speedy development of captive coal blocks upon restoration, imminent FSAs for post-FY09 projects and capacity addition in sync with targets would bode well for fuel security and defensive earnings growth outlook.
Building in lower levels of plant availability/utilisation and efficiency-linked gains, we lower NTPC FY13F/14F Ebitda by 8-13%; our cut in EPS is lower (Nil for FY13F, 5% for FY14F) due to a sharp rise in our forecast for non-operating income.
In our view, an effective RoE of ~20% on regulated assets seems sustainable post FY13.
Our long-term investment thesis on NTPC remains unchanged — despite a defensive earnings growth outlook, the stock remains our preferred pick among IPPs, as NTPC offers high earnings visibility, lowest funding risk, relatively adequate fuel security and a competitive cost of generation (potentially, even if coal price pooling is introduced in India).
We continue to peg our 12-month target
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