Buy NTPC as govt restores de-allocated mines to firm

Maintain buy on NTPC as the government allots previously de-allocated coal blocks to NTPC. We are reviewing our We maintain that NTPC should be able to achieve a 17%+ operating return on regulated equity (RoRE) under the new tariff regulations. At the current market price, the stock trades at FY16f 1.4x P/B (BPS of Rs 112.1) and 13.9x P/E (EPS of R11). As part of the ongoing coal block auctions/allotment, the government has notified the allotment of 37 coal blocks to central/state PSUs. While 43 coal blocks were envisaged to be allotted to central/state PSUs, the actual number is smaller.

NTPC has been allotted the five erstwhile captive coal blocks with the company – Chhatti Bariatu, Chatti Bariatu (South), Dulanga, Kerandari and Talaipalli – which were de-allocated by the Supreme Court (SC) in its judgment cancelling almost all coal block allocations between 1993-2010.

NTPC had applied for eight out of the 43 coal blocks government proposed to allot to central/state PSUs at a reserve price; the company faced competition from 2-6 applicants for the five coal blocks that have been allotted to it. Notwithstanding the six months of time lost in developing these five coal blocks and payment of a reserve price for the same, we believe the restoration of its captive coal blocks is a relief. The focus would now once again shift to the production start-up timelines from these coal blocks.

NTPC Limited