Emkay Global

NTPC (Buy)

Target: ₹180

CMP: ₹140.55

In light of the increased focus on climate change and renewable energy (RE), NTPC’s large coal plant fleet has been a matter of concern. However, we believe that the company is poised to benefit from the rapid expansion of its RE portfolio and steady earnings from the existing coal assets.

NTPC has been very competitive in bidding for the majority of RE projects lately. NTPC has doubled its RE portfolio in the last 18 months, with about 7 GW of projects currently either commissioned, under implementation or bid successfully. NTPC has recently won 1.9 GW in the auction of CPSU Scheme-II (tranche-III of 5 GW). In FY21, NTPC had a 15 per cent market share in RE bids in the country.

With a better demand scenario, we expect higher utilisation of coal assets as RE additions alone cannot fulfill incremental demand. Further, there has been an overall improvement in the performance of key subsidiaries in FY21. NTPC’s ability to source low-cost debt will enable it to resourcefully attain its RE plan. NTPC is expected to add about 25GW of thermal and RE projects at the group level in the medium term. RE expansion and improvement in the RoE profile should lead to a re-rating in the stock. In the past five years, the company has traded at an average PB of 1.1x and RoE of sub 11 per cent. With RoEs moving to 12.5 per cent a re-rating should happen, in our view.

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