Low valuation, and end of OFS overhang make NTPC a good long-term pick
The completion of NTPC’s offer for sale (OFS), which has had a big overhang for the company, is welcome news.
The OFS got a much better response than was expected by most market watchers and the sale of 9.5% stake by the government was oversubscribed by 1.7 times.
This has brought down the government’s stake in NTPC to 75%, which is the maximum promoter stake permitted by Sebi.
Another positive impact has been the increase in the floating stock, which will raise the thermal power giant’s weightage in the MSCI’s freefloat-based indices, driving more FII money to the counter.
Despite the power sector woes, NTPC continues to report decent numbers. Its net profit rose 22% in the third quarter of 2012-13 compared with the same period last year.
Analysts say that NTPC also has strong growth prospects, especially in the next few years.
With the government taking measures to improve the power situation, analysts expect fast decisions on coal pooling mechanism and improved tariff regulation, both of which will be beneficial for power producers like
The state electricity board (SEB) restructuring plan and power tariff increase by some state governments should resolve the payment delays and offtake issues.
NTPC has also been reallocated three captive coal blocks and its coal supply situation will improve once these start in 2016-17. The company has been underperforming the broader market over the past year due to sector-related issues and the OFS overhang.
This brought NTPC’s valuation to multiyear lows and helped make a success of the OFS.
This also means that most of the sectoral concerns (health of the state electricity boards, coal availability issues, etc) have already been factored in the price.
With the fundamentals of the sector expected to improve from the current levels, NTPC is a good pick for the long-term investors.
Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month.
Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell).
Any improvement in consensus rating indicates that the analysts are becoming more bullish on the stock.
To make sure that we pick only companies with a decent analyst coverage, this search will be restricted to the stocks that have been covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in ETW 100 table.