Hold NTPC Ltd For Target Rs.122 - ICICI Direct
Transitioning towards greener side…
About the stock: NTPC is India’s largest power generation company with a total installed capacity of 66885 MW at the group level.
* NTPC has 17% of total installed capacity in India with 23% generation share
* The company’s vision is to become a 130 GW+ company by 2032 of which 60 GW would be contributed by renewable energy.
Q1FY22 Results: NTPC reported Q1FY22 results, which were below estimates on account of lower-than-expected tariff and higher interest costs.
* Reported revenues came in at | 26038.5 crore vs. our estimate of | 27140.5 crore, the key reason being lower-than-expected tariff of | 3.73/kWHR
* On the operational parameter front, expected generation during Q1FY22 at 71.7 billion units. Energy sold was tad higher than estimates at 66.6 BUs
* EBITDA came in at | 7438.9 crore. Reported PAT came in at | 3145.6 crore vs. our estimate of | 3862.7 crore.
What should investors do?
NTPC has been a significant underperformer in the power space led by a shift of value towards the renewable space. We shall await and keenly observe the execution pace of NTPC in the renewable segment.
* Maintain our HOLD rating on the stock
Target Price and Valuation: We value NTPC at | 122 i.e. 0.9x FY23E Book value.
Key triggers for future price performance:
* NTPC has set aggressive renewables long term capacity addition target of 60000 MW by 2032, which was earlier pegged at 30000 MW.
* Also, in the medium term, NTPC expects to have a cumulative capacity to the tune of 15000 MW by FY24E. Rising share of renewables and strong execution for the ramp up of the same will trigger a re-rating.
Alternate Stock Idea: In the power space, we are bullish on IEX’ prospects
* Dominating market share, strong traction in new products and strong opportunity landscape
* BUY with a target price of | 530 per share, valued at 50x FY23E EPS
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