Edelweiss rates NTPC as ‘Buy’; target price Rs 190

We interacted with key officials of Rajasthan Rajya Vidyut Udpadan Nigam (RRVUNL) on the proposed takeover of its 2,320MW (4x250MW and 2x660MW) Chabra power plant by NTPC. Key attributes of the subcritical plant include: station heat rate (SHR) of 2312.3kcal/kWh which is difficult to achieve, if not impossible, due to which the variable cost is not within the RERC norms; past three month’s average PLF of ~90% builds in seasonality; approved capital cost of R50 million/MW is transfered to NTPC at book value (BV), and equity value of R7 billion adjusted to the extent of normalised SHR.

While we await more details, our analysis suggests the transaction to be marginally EPS accretive. NTPC has signed a non-binding agreement to buy the Chhabra thermal power plant (stage I and II of) from RRVUNL. While stage I constitutes the 1,000MW operating plant, stage II constitutes 1,320MW under construction. The Chhabra plant has long-term PPAs with the Rajasthan distribution companies on a cost-plus tariff basis.

The current deal is pegged at BV of ~R50 million/MW and equity value getting adjusted, if the SHR is not achieved. Our ball-park analysis suggests the deal would be marginally EPS accretive for NTPC by ~1%. We introduce and roll forward our valuations on FY19E. The stock trades at 1.4x FY18E and 1.3x FY19E P/BV. Maintain ‘buy/SP’ with a revised SoTP-based target price of R190.

NTPC Limited