NTPC - Green acceleration! - ICICI Securities

In his recent interactions with investors, NTPC CMD Mr Gurdeep Singh has elaborately laid down the roadmap for the company in the next decade. Key thrust areas include: 1) Transition towards an integrated energy company with target capacity of 130GW by FY32, 2) no addition of new greenfield thermal plants, 3) steady transition towards higher clean generation portfolio with increased focus on renewables, 4) improvement in ESG score to maximise stakeholder value, 5) fuel security assured for long term and 6) maximising shareholder returns through best possible means. We expect company's core earnings to remain strong and further strengthened by the robust commissioning pipeline and several green initiatives. We incorporate CERC norm on RoE for FGD capex in our estimates, which although we believe is positive compared with draft norms, but is lower than our estimate of 15.5%, leading us to cut our FY22E EPS estimates by 2.2%. Maintain BUY with an unchanged target price of Rs165.

- Green, sustainable, ESG compliant growth, focusing on maximising stakeholder value: NTPC plans to achieve 130GW capacity by FY32 through a combination of organic and inorganic expansion. It is striving to increase the pie of its capacity mix more in favour of 'clean' sources, i.e. renewables (solar, wind, hydro) and gas from ~17% currently to 40.2% in FY32, aiming to become country's largest RE player. It is also taking several initiatives to reduce carbon footprint/emissions from its existing coal-based plants. ESG has become a key focus area with several initiatives aimed at improving ESG scores, ultimately aimed at maximising stakeholder value.

- CERC's decision on RoE for FGD capex positive: As per the final regulation, the RoE in respect of additional capitalisation on account of emission control system shall be computed at the base rate of one year marginal cost of lending rate (MCLR) of the State Bank of India as on 1st April of the year in which the date of operation (ODe) occurs, plus 350 basis point, subject to a ceiling of 14%. Thus, for FGD commissioning in FY21, RoE will be at ~11.25%. With total FGD capex at ~Rs300bn up to FY23, of the total estimated regulated equity base of Rs980bn (including NPGCL & Kanti), Rs890bn will be at 15.5% while Rs90bn will be at 11-12%; hence, a minor reduction in our estimates.

- Transition towards an integrated energy company to bring huge opportunities across segments: From only a generator, NTPC aims to become an integrated energy company by FY32 with greater interest in mining, distribution, trading and other areas, apart from generation (both conventional and renewable). Thrust is to achieve the same through sustainable, clean and green route with higher efficiency providing affordable power to the country.

- Maintain BUY: In our FY22 estimates, we had earlier assumed 15.5% RoE for FGD capex. Incorporating CERC's norms, there is 2.2% reduction in FY22E EPS. Our revised standalone EPS for FY21E/FY22E/FY23E is Rs12.3/Rs16.5/RS18.5, respectively, while consolidated EPS is Rs14/Rs18.5/Rs21, respectively. We maintain BUY with target price remaining unchanged at Rs165/share. Stock is trading at 6.3x FY22 standalone PE & 0.8x P/BV & 6% dividend yield.

- The next decade: NTPC plans to incur a capex of Rs2.2tn over the next 5-7 years, requiring equity investment of ~Rs550bn (over and above the current CWIP of Rs900bn). With this, the regulated equity (cost plus assets) of the company will increase from Rs772bn in Q1FY21 to Rs1,400bn (on consolidated basis) by FY30E, with additional Rs240bn equity invested in renewables (mainly solar). We expect consolidated EPS to grow from Rs21/share in FY23 to Rs35/share by FY30.

Shares of NTPC LTD. was last trading in BSE at Rs.102.75 as compared to the previous close of Rs. 103.75. The total number of shares traded during the day was 914877 in over 3024 trades.

The stock hit an intraday high of Rs. 105 and intraday low of 101.55. The net turnover during the day was Rs. 94213453.

Source : Equity Bulls

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