NTPC’s Q1FY09 sales grew 6.5% to Rs95.4 billion, driven by the increase in the realization rate.
Considering the Company’s historical performance, we believe that the realization rates will remain a major revenue driver.
However, the company’s plants are suffering a fuel shortage. The coal-based power plants are operating at a lower PLF due to a rain-induced coal shortage.
The gas-based power plants too are facing a similar problem because of difficulties in procuring gas. We believe the management should be able to solve this problem by imports.
NTPC plans to increase its installed capacity to 30 GW by 2010, 50 GW by 2012, and 75 GW by 2017 across all types of power, such as coal, gas, hydro, nuclear, and renewable energy.
Capacity addition plans for the XIth plan are progressing as per schedule with 2,490 MW of capacity already commissioned, and the balance in the construction and awarding stages.
It also plans to develop 4 merchant power plants, which should provide higher returns.
NTPC plans to diversify its portfolio with presence across the entire energy value chain through backward and forward integration into areas such as coal mining, LNG, manufacturing, trading, and distribution.
At the current market price, the stock is trading at a forward P/E of 19.2x and 16.6x for FY09E and FY10E, respectively. Our DCF valuation based target price does not indicate any major upside from the current levels. Hence, we maintain our HOLD rating.