Why are NTPC’s shares seen trading near 10-month low?

NTPC Ltd is the world’s most-loved power producer by equity analysts, and yet its shares are trading near a 10-month low. Why?

The New Delhi-based company is the top rated stock among the world’s largest utilities, with a recommendation consensus of 4.9 on a Bloomberg scale where 5 is a unanimous buy. Analysts expect the company to wring more profit from soon-to-be acquired hydro-power assets, helping it lift its earnings and share price.

The hydro assets to be acquired offer significant scope to improve efficiency and boost profitability, analysts at SBICap Securities Ltd wrote in a recent note after a government panel approved the sale of stakes in generators THDC India Ltd and North Eastern Electric Power Corp to NTPC.

NTPC trades at 8.5 times projected earnings for the next fiscal year, the fourth-cheapest among members of Indias S&P BSE Sensex. All but one of the 26 analysts covering the company rate it a buy, with a return potential of 34 per cent, the third-highest among Sensex members.

Profit took a hit over the last two years due to disruptions in coal supplies, but the fundamentals are now priced in and valuation is near historic lows, said Rupesh D Sankhe, an analyst at Elara Capital India Pvt. in Mumbai. Capacity addition in the next two years will drive earnings growth.

“Unlike private sector rivals, NTPC’s revenue doesn’t depend on India’s demand for power -- which slumped for a fourth straight month in November. The company, which supplies power to state electricity boards, is assured a 15.5 per cent return so long as it keeps its plants running 85 per cent of the time, according to Rohit Natarajan,” an analyst at Antique Stock Broking Ltd.

“Private sector players have systemic issues of some or the other form, while NTPC has remained unscathed and has a matured predictable business model. The consensus view is completely justified,” , said Natarajan.

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