Neutral NTPC Ltd For Target Rs.360 by Motilal Oswal Financial Services Ltd
NGEL capacity commissioning a key monitorable
* NTPC’s standalone revenue for 2QFY27 came in at INR458b, 11% ahead of our estimate, while EBITDA was in line at INR109b, with EBITDA margin contracting 180bp YoY to 23.8%. APAT exceeded our estimate by 14% at INR53.4b, largely reflecting a higher-than-expected regulatory deferral income.
* Key things we liked about the result:
1) The company is scaling up its BESS ambitions, targeting 5GWh of storage deployment at thermal power stations, while NGEL has a broader ~40GWh storage pipeline
2) NTPC's coal station reported a strong PLF of 75.11% in 1HFY27, significantly ahead of the all-India average of 68.35%
3) management reaffirmed the FY28/29 thermal and hydro capacity addition guidance of 1.9/3GW
4) It is exploring C&I opportunities across thermal, hydro, and RE generation, alongside heat supply, with plans to offer 26% equity participation to C&I consumers under the group captive route, creating an additional growth avenue.
* Key monitorable: Pace of NGEL's commissioning remains a key monitorable, with RE capacity additions at only 1.3GW till FY27’YTD; FY27 RE capacity addition guidance has been cut from 8GW to 6.5GW (incl. ~1.5GW of capacity that might be awaiting transmission connectivity). FY28/29 RE guidance has also been reduced from 8.1GW/8.4GW to 7.7GW/7.8GW, despite factoring in the spillover of FY27 additions.
* Valuation and view: We have a Neutral rating on NTPC with a TP of INR360. Our TP is based on value of INR217 for the standalone, coal, and other businesses at FY28E P/B of 2x and value of INR20 for other subsidiaries at FY28E P/B of 2x and INR33 for JV/associates at FY28E P/B of 1x. The stake in NGEL is valued at a 25% discount to the current market price.
* Our TP of INR360 for NTPC is based on: Value of INR217 for the standalone, coal, and other businesses at FY28 P/B of 2x.
* Value of INR20 for other subsidiaries at FY28 P/B of 2x and INR33 for JV/associates at FY28 P/B of 1x P/B.
* The stake in NGEL is valued at a 25% discount to the current market price.
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