NTPC’s present installed capacity stood at 53.7GW at the end of Q1FY19 and the company aims to increase its installed capacity to 130GW by 2032. At present NTPC has 21GW of projects under construction of which it plans to capitalize 4-5GW each year between FY19 to FY22E. NTPC’s capitalisation exceeded its capex for the first time in FY18 and we expect this strong capitalisation trend to continue over next 5 years, which in turn will boost its ROE from 9.8% in FY18 to 12% in FY20E. We remain bullish on NTPC from a longer term perspective and initiate coverage on the stock with a ‘Buy’ rating and a target price of Rs 213 per share, which gives an upside potential of 25.3%.
Valuation: At CMP of Rs 170, NTPC is trading at 1.2xFY19E and 1.1xFY20E BV, which is below its ten-year average of 1-year forward P/BV of ~1.9x. We value the stock at a target P/BV multiple of 1.4x of FY20E to arrive at a target price of Rs 213. We initiate coverage on the stock with a BUY rating and a target price of Rs 213, which gives an upside potential of 25.3%.
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