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The public sector thermal power producer NTPC Ltd was up 3.08 per cent intraday and topped the gainers' list on the Nifty index on Friday.
The Cabinet Committee of Economic Affairs (CCEA) has given in-principal approval for the sale of Government's holding in NEEPCO (100% - GoI holding ) and THDC India Ltd (75% holding) to NTPC.
The share touched its 52-week high of Rs 145.85 and a 52-week low of Rs 106.75 on July 1, 2019 and February 13, 2019, respectively.
As per JM Financial's recommendations, the acquisition of these new capacities (including under-construction) adds 5 GW (10% of NTPC capacity) of mostly hydropower assets to NTPC’s largely coal dominated asset base.
THDC is the better assets with superior RoEs while NEEPCO is sub-optimal. Hence, its acquisition value should also reflect the same.
Also, a higher debt-funded acquisition would be more value accretive for NTPC, given it has access to low-cost debt. We find both additions to be earnings accretive for NTPC at the fair value and with NTPC’s strong balance sheet (FY19 net D/E at 1.3x) and annual profits of INR 100-120bn these are easily funded from 2-3 years of internal accruals.
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