Value Pick - NTPC

A power packed stock

The present state of the market has brought the blue chips at much below their intrinsic worth, with many having corrected by about 30% from their recent highs. Under the present circumstances, it is thus best to pick up stocks which today offer greater value for money. National Thermal Power Corporation (NTPC) is one such stock.

* This power generating PSU currently has a power generation capacity of 27,904 MW. Of this, the company owns 26,850 MW. Of this 26,50 MW, 22,895 MW is coal based with 15 projects while 3,955MW is gas based with 7 projects. 1054 MW is under JV of which 314 MW is coal based and 740MW is gas based.

· The paid up equity of the company is at Rs.8,245 crore being 824.55 crore equity shares of Rs.10 each. Of this, the Government of India holds 89.5%, 7.55% by mutual funds, banks and insurance companies while public holds 2.95% as at 31/12/07. Such a massive power generation company with a paid up equity of just Rs.8,245 crore is beyond imagination!

· NTPC is implementing 11 projects for 10,860 MW in various states, which would take the capacity of the company to close to 40,000 MW. All these projects would be operational in next 36-42 months. The total cost of these projects is Rs.40,000 crore and are located in UP, Bihar, Assam and Maharashtra.

· NTPC has also entered into a Joint Venture with BHEL, a 50:50 JV to carry on EPC activities, including manufacturing and supply of equipments and power plants for third party power generating companies.

· For FY07, the total income of the company was at Rs.35.380 crore, with an EBIDTA of Rs.12,842 crore, giving a margin of 36.3%. PBT was at Rs.8,907 crore while PAT was at Rs.6,865 crore, giving an EPS of Rs.8.33.

· For the nine months ended 31/12/07, the total income of the company was at Rs.28,531 crore, with an EBIDTA of Rs.10,626 crore, resulting in a margin of 37.25%. This is an increase in the EBIDTA margin by 95 bps in 07-08. PBT was at Rs.8,103 crore while PAT was at Rs.6,076 crore. This gives an EPS of Rs.7.37 for the period. This implies that FY08 EPS would exceed Rs.10.

· Net worth of the company as at 31/12/07 is at Rs.55,300 crore, resulting in a book value of Rs.67. The debt of the company is less than Rs.20,000 crore, net off cash balance resulting in a debt equity ratio of just 0.35:1. Presently, all other power generation projects are going for a debt equity of 70:30.

· With huge thrust in the 11th Plan on power generating capacity of 70,000MW, the company would cross power generating capacity of 50,000 MW by the end of the 11th Plan period, viz: 2012.

· Instead of going for Ultra Mega Power Projects, the company is implementing projects of 1,000MW to 2,000 MW which can get completed in 3 years, in phases. Some of these projects are 1980 MW (660 MW ´3) in Bihar with Capex of Rs.7,341 crore; 750 MW (250 ´3) with outlay of Rs.4,375 crore in Assam; 1000MW (500 MW ´2) with outlay of Rs.5,459 crore in Maharashtra and 1320 MW (660MW ´ 2) in Allahabad. This puts the projects on a fast track thus minimizing the execution risks and cost overruns.

· Once Nuclear Power project takes off, NTPC would be a giant player in the field to increase its power generating capacity.

· For FY09, the EPS of the company would be placed close to Rs.12.50 which discounts current share price of Rs.190 by about 15 times. All other power generating companies are ruling at a PE multiple of 20 to 35 times, despite none of them having even a 10% power generating capacity of NTPC.

· Share at Rs.190 is a safe and excellent bet, which can give a consistent return of 24% over the next 3-4 years in share price. Go for this power packed stock!