JP Morgan puts overweight rating on NTPC
JP MORGAN upgrades its rating on NTPC to ‘overweight’. The key risks to the target price of Rs 185 include major execution delays and a shortage of coal.
By ET Bureau |
NTPC
RESEARCH: JP MORGAN
RATING: OVERWEIGHT
CMP: Rs 165
JP MORGAN upgrades its rating on NTPC to ���overweight���. The key risks to the target price of Rs 185 include major execution delays and a shortage of coal.
NTPC���s size, strong balance sheet and assured-return structure put it in a strong position to achieve its growth plans. JP Morgan advises investors to use share price corrections due to hiccups in execution, if any, to buy the stock, as near-term delays do not affect its valuation much.
Apart from execution, customers' ability to absorb the rise in tariffs and the impact of coal shortages on incentives are the key concerns. With coal prices declining, the cost of debt is the main inflationary factor ��� power tariff can rise 6-7 % per annum if interest costs rise by 500 bps.
Access to KG Basin gas is an important potential catalyst to improve gas stations' PLF and incentives. NTPC is trading at 15.6x FY10 P/E, 2.2x FY10 P/BV and is close to the March ���10 target price of Rs 185. This includes Rs 11/share value for NTPC's 2 billion tonnes mineable coal reserves.
Any positive news flow when coal production commences can improve this valuation. A replacement value-based approach for current capacities suggests a fair value of Rs 140, indicating the market is paying a reasonable premium for 2x capacities in the pipeline.
RESEARCH: JP MORGAN
RATING: OVERWEIGHT
CMP: Rs 165
JP MORGAN upgrades its rating on NTPC to ���overweight���. The key risks to the target price of Rs 185 include major execution delays and a shortage of coal.
NTPC���s size, strong balance sheet and assured-return structure put it in a strong position to achieve its growth plans. JP Morgan advises investors to use share price corrections due to hiccups in execution, if any, to buy the stock, as near-term delays do not affect its valuation much.
ADVERTISEMENT
Apart from execution, customers' ability to absorb the rise in tariffs and the impact of coal shortages on incentives are the key concerns. With coal prices declining, the cost of debt is the main inflationary factor ��� power tariff can rise 6-7 % per annum if interest costs rise by 500 bps.
Access to KG Basin gas is an important potential catalyst to improve gas stations' PLF and incentives. NTPC is trading at 15.6x FY10 P/E, 2.2x FY10 P/BV and is close to the March ���10 target price of Rs 185. This includes Rs 11/share value for NTPC's 2 billion tonnes mineable coal reserves.
Any positive news flow when coal production commences can improve this valuation. A replacement value-based approach for current capacities suggests a fair value of Rs 140, indicating the market is paying a reasonable premium for 2x capacities in the pipeline.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
