Nomura Financial Advisory and Securities has maintained 'Buy' rating on NTPC with target price of Rs 175 as against current market price Rs 150 in its report.
Commenting on the investment rationale Nomura said, ''We sense a bit of a pick-up in the pace of project execution (capacity addition + development of captive coal blocks, which is now being closely monitored by the government) and linkage coal availability remains comfortable. Together with the ebbing risk of material under-recovery of costs under the new tariff regime (as reflected in 9MFY15 financials), improving reported RoE from FY16F onwards and a relatively benign valuation (FY17F P/B is 1.4x), we remain constructive on the stock.''
''We trim NTPC's FY16F/17F EPS by 2% and expect FY15F-18F EBITDA/EPS CAGR at 14%/8% (we continue to assume zero returns on capex incurred on the development of captive coal blocks). We believe that an operating return on average regulated equity (RoRE) of 17% on its ex-solar generation capacity is sustainable (this return excludes the contribution from net normative interest on working capital) in the current regulatory regime,'' it said.
''We continue to calculate NTPC's 12-monthTP as the sum of RI-model-based value of operating assets and BV of financial assets + equity invested in generation assets housed in JVs/subs. The hike in our TP stems from a longer explicit forecast period, roll forward of the base year to FY16F and a 30bp cut in CoE to 12.2%. We still prefer Power Grid (PWGR IN, Buy) over NTPC given PWGR's superior FY15F-18F outlook for earnings growth and reported RoE,'' Nomura added.
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