Neutral NTPC Ltd for the Target Rs.378 by Motilal Oswal Financial Services Ltd
Thermal demand and tariff competitiveness set to improve
* We see a potential upside to the sector’s ~86GW thermal capacity addition requirement, supported by stronger-than-expected power demand growth – base case now at ~6% vs. ~5% earlier. As ISTS transmission charge waiver for RE projects is phased out in the next four years, we believe the relative attractiveness of thermal tariffs vis-à-vis renewable tariffs should improve.
* NTPC focuses on brownfield expansion and can add ~15GW capacity without retiring existing units, while existing thermal plants could achieve PLF of up to ~80% during strong demand conditions. NTPC’s total capacity addition guidance remains unchanged at ~9.5GW in FY27, including ~8GW of renewables, although the renewable target carries some downside risk.
* We are confident about NTPC’s long-term outlook, though given sluggish nearterm earnings growth, we reiterate our Neutral rating with a TP of INR378.
~86GW thermal pipeline; NTPC targeting ~10-15GW
* We believe there could be upside to the ~86GW thermal capacity addition requirement currently estimated (as per CEA’s National Generation Adequacy Plan) for the sector over the longer term.
* We believe NTPC could potentially add another 15GW through brownfield expansion without retiring existing units, before the need to move toward greenfield development becomes more significant.
* Of the broader ~85-86GW thermal capacity requirement:
* State utilities are expected to contribute a portion
* NTPC could potentially account for ~10GW of additional capacity
* Private-sector utilities are also expected to add capacity
* Therefore, the final allocation of the overall thermal capacity requirement will depend on the pace of additions by central, state and private-sector players.
* NTPC’s FY27 capacity addition guidance remains at ~9.5GW overall, with ~8GW of renewable capacity additions on track, although there could be some downside risk to the RE target. While NTPC continues to build an attractive thermal/nuclear pipeline, the bulk of the growth remains backend loaded.
* NTPC is targeting operational renewable capacity of 28GW/60GW by FY28/FY32.
Valuation and view
* Value of INR216 for the standalone, coal, and other businesses at 2x FY28E P/B
* Value of INR20 for other subsidiaries at 2x FY28E P/B and INR49 for JV/associates at 1.5x FY28E P/B
* The stake in NGEL is valued at a 25% discount to the current market price
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