NTPC stock may give 20% upside in the medium term

NTPC Ltd is the country’s largest power utility company in the business of generation and sale of bulk power with an installed capacity of 63925 MW and plans to become a 130 GW company by 2032. The other business of the company includes providing consultancy, project management, oil and gas exploration and coal mining. The company has a strong commitment towards Renewable Energy (RE), having diversified into producing energy through cleaner and greener sources such as hydro, wind and solar. It has also forayed into a variety of business areas such as fuel cells, e-mobility, green hydrogen solutions and waste-to-energy and has already commissioned 2524 MW of RE projects. At present, around 5348 MW of RE projects are under construction and in various stages of implementation around the country. The company’s wholly owned subsidiary-NTPC Renewable Energy Limited has entered into a 51:49 joint venture with DVC to develop, operate and maintain Renewable Energy parks and projects. The NTPC management has also indicated in its analysts meet recently that it would like to monetise around 2861 MW of existing renewable energy assets having a book value of around Rs 10,000 crore. The modalities of the deal is that the existing RE assets would get transferred to NTPC Green Energy Ltd along with the entire stake in NTPC RE. And then NTPC Group would offload between 10-20% stake in NTPC Green Energy Ltd to potential investors. The company is expected to close the transaction before the closure of the current financial year. From the fund point of view, the company has mobilised a total amount of Rs 12000 crores by way of term loans and bonds of various duration at an average borrowing cost of 6.22%. Meanwhile, the company has incurred a capital expenditure of around Rs 16664 crore for an estimated total capital outlay of Rs 22454 crore for the half year ended September 2023. NTPC reported a remarkable second quarter of FY23 with a very strong operational and financial performance. Total income for Q2FY23 was up 37% at Rs 41,810 crore as against Rs 30,305 crore of the previous corresponding year while profit after tax stood at Rs 3,331 crore as against Rs 3,156 crore in the corresponding quarter of the previous fiscal. As on 30 September 2022, the commercial capacity of the company stood at 57639 MW on a standalone basis. Analysts and brokers are quite bullish on the NTPC stock and expect the earnings to be better in the second half of the current financial year with recovery in margins, strong growth in generation led by easing of coal supply and timely capitalisation of assets under construction. Even the monetisation of the renewable energy assets in the next few months can be an upside trigger for the NTPC stock.
At the current market price of Rs 165, the dividend yield for the stock is over 4% which is quite attractive for potential retail investors. Along with the monetisation of RE assets in the near future, retail investors can expect a higher dividend payout from NTPC. The NTPC stock valuation looks quite attractive fundamentally at present and investors after proper due diligence and advice could look at investing in the stock for a solid 20% upside in the medium term.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.