Offer for Sale | Power Sector

February 6, 2013

NTPC
Valuation commands Subscribe
The government is coming out with an Offer For Sale (OFS) of 78.3cr equity shares of NTPC. The OFS is expected to raise close to `11,350cr at the floor price of `145/share. After this OFS, the governments stake in the company would come down from 84.5% to 75%. The OFS will be held on February 07, 2013.

SUBSCRIBE
CMP
OFS floor price
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Power 125,578 30,365 0.8 190/139 239,341 10 19,640 5,959 NTPC.BO NTPC@IN

`152 `145

Investment Arguments
Capacity addition to drive future growth: Going forward, NTPCs growth is expected to be driven by the huge capacity addition planned by it. The company envisions having 51,000MW of capacity by FY2017. In all, the company targets to add ~14,038MW of capacity in the Twelfth Plan (FY2012-17), of which 4,170MW and 2,718MW of capacity is planned for addition during FY2013 and FY2014 respectively. The robust capacity addition is expected to result in 15% CAGR in regulated equity to `36,003cr over FY2012-14E. Earnings protected by the regulated return model: NTPC, being a central public utility, is governed by the regulated return model. The CERCs regulations for FY2010-14 provide RoE of 15.5% on regulated equity. As per regulations, fuel costs are a pass-through, which protect the company from cost pressures due to increased fuel costs. NTPC has 85% of its overall output tied up under the long-term power purchase agreement (PPA) route (regulated returns), which ensures power off-take and stable cash flows thereof. Outlook and Valuation: We expect NTPC to register a CAGR of 12.3% and 8.5% in its top-line and bottom-line over FY2012-14E, respectively. At the offer price (which is at a 4.6% discount to the price as on February 06, 2013), the stock would trade at 1.3x FY2014E P/BV. Given the attractive valuation (stock trading at 1.3x FY2014E P/BV compared to its three year trading range of 1.5x to 2.3x and median of 1.8x), we recommend Subscribe on the issue. We have assigned a multiple of 1.5x to arrive at a target price of `163. Key financials (Consolidated)
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 84.5 7.5 4.4 3.6

Abs. (%) Sensex NTPC

3m 4.4

1yr 10.9

3yr 23.4 (25.7)

(9.6) (14.3)

FY2011

FY2012

FY2013E

FY2014E

57,607 19.4 7,691 (13.0) 22.2 9.3 15.5 1.7 11.5 8.8 2.4 11.0

64,958 12.8 9,497 23.5 21.8 11.5 12.6 1.6 13.1 8.7 2.3 10.6

72,809 12.1 10,048 5.8 23.4 12.2 11.9 1.5 12.7 9.3 2.3 9.7

81,951 12.6 11,187 11.3 24.1 13.6 10.7 1.3 13.0 9.6 2.2 9.0
Amit Patil 022-39357800 Ext: 6839 [email protected]

V Srinivasan
022-39357800 Ext: 6831 [email protected]

Please refer to important disclosures at the end of this report

Offer for Sale | Power sector

Company Background
Established in 1975, NTPC is India's largest power generation company. NTPC Group has an installed capacity of 39,674MW. The company enjoys healthy operational efficiency and has consistently reported high PLF of ~85% compared to all-India PLF of ~73%.

Investment Rationale
Capacity addition to drive future growth: Going forward, NTPCs growth is expected to be driven by the huge capacity addition planned by it. The company envisions having 51,000MW of capacity by FY2017. In all, the company targets to add ~14,038MW of capacity in the Twelfth Plan (FY2012-17), of which 4,170MW and 2,718MW of capacity is planned for addition during FY2013 and FY2014 respectively. NTPC has already commissioned 2,660MW capacity in 1HFY2013 and is likely to meet its targeted capacity for FY2013. The robust capacity addition is expected to result in 15% CAGR in regulated equity to `36,003cr by FY2014.

Exhibit 1: Upcoming Projects

Projects Vallur I, Phase I & II JV Solar PV (A&N, Dadri) Rihand III Bongaigaon Barh-II Koldam Singrauli Hydel Vallur I, Phase I & II JV Bongaigaon Barh-II Barh-I Tapovan Vishnugarh Hydel Nabinagar JV Kanti - Subsidiary Barh-I Vindhyachal Kudgi Nabinagar JV Kudgi
Source: Company, Angel Research

Capacity (MW) 500 10 500 250 660 800 8 500 500 660 660 520 500 390 1320 500 800 500 800

February 6, 2013

Offer for Sale | Power sector

Exhibit 2: Capacity ramp up

50,000 45,000 40,000 35,000 30,000 37,014 41,184 43,902 25,000 20,000 15,000 10,000 5,000 FY2011 Source: Company, Angel Research FY2012 FY2013E FY2014E FY15E 34,194 47,132 FY2014E 36,003 (MW) (` cr)

Earnings protected by the regulated return model: NTPC, being a central public utility, is governed by the regulated return model. CERCs regulations for FY2010-14 provide RoE of 15.5% on regulated equity. As per regulations, fuel costs are a pass-through, which protect the company from cost pressures due to increased fuel costs. NTPC has 85% of its overall output tied up under the long-term power purchase agreement (PPA) route (regulated returns), which ensures power off-take and stable cash flows thereof. Further, recent tariff hikes carried out by almost all SEBs across India is expected to improve their financial position, resulting in higher power off-take, which will benefit NTPC.

Exhibit 3: Regulated Equity

40,000 35,000 30,000 25,000 32,431 FY2013E 20,000 23,741 15,000 10,000 5,000 FY2010 Source: Company, Angel Research FY2011 FY2012 25,408 27,162

February 6, 2013

Offer for Sale | Power sector

Outlook and Valuation

We expect NTPC to register a CAGR of 12.3% and 8.5% in its top-line and bottomline over FY2012-14E, respectively. At the offer price (which is at a 4.6% discount to the price as on February 06, 2013), the stock would trade at 1.3x FY2014E P/BV. Given the attractive valuation (stock trading at 1.3x FY2014E P/BV compared to its three year trading range of 1.5x to 2.3x and median of 1.8x), we recommend Subscribe on the issue. We have assigned a multiple of 1.5x to arrive at a target price of `163.

Exhibit 4: One-year forward P/BV

350 300 250 200 150 100 50 May-07 May-08 May-09 May-10 May-11 May-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Jan-13

Share Price (`) Source: BSE, Company, Angel Research

1.5x

2.0x

2.5x

3.0x

Company Background
Established in 1975, NTPC is India's largest power generation company. NTPC has an installed capacity of 39,674MW (including 4,864MW under JVs), spread across 28 power stations. The company's capacity has grown by 9,610MW over FY2007-12. The company envisions being a 75,000MW company by FY2017. NTPC enjoys healthy operational efficiency and has consistently reported high PLF of ~90% compared to all-India PLF of ~75%.

February 6, 2013

Offer for Sale | Power sector

Profit and loss statement (Consolidated)

Y/E March (` cr) Total Operating Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income Share in profit of Associates Recurring PBT Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less Minority Interest PAT After Minority Interest % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 44,245 14.5 33,702 27,347 3,823 2,533 10,544 (7.6) 23.8 2,495 8,049 (12.6) 18 2,144 3,402 9,307 9,307 1,215 13.1 8,092 8,092 8.3 18.3 9.8 9.8 8.3 48,231 9.0 35,156 30,188 2,446 2,523 13,075 24.0 27.1 2,894 10,180 26.5 21 2,078 2,947 11,049 11,049 2,211 20.0 8,838 (0.0) 8,838 9.2 18.3 10.7 10.7 9.2 57,607 19.4 44,833 36,422 5,488 2,922 12,775 (2.3) 22.2 2,720 10,055 (1.2) 17 1,726 2,401 10,730 10,730 3,044 28.4 7,686 (5.2) 7,691 (13.0) 13.4 9.3 9.3 (13.0) 12,821 3,323 25.9 9,499 1.9 9,497 23.5 14.6 11.5 11.5 23.5 64,958 12.8 50,768 43,312 4,207 3,250 14,190 11.1 21.8 3,107 11,083 10.2 17 2,135 3,873 12,821 72,809 12 55,793 47,763 4,570 3,460 17,016 19.9 23.4 3,736 13,280 20 18 2,935 2,984 13,329 13,329 3,279 25 10,050 2 10,048 5.8 13.8 12.2 12.2 5.8 81,951 13 62,183 53,268 5,143 3,772 19,767 16 24.1 4,366 15,402 16 19 3,496 2,934 14,840 14,840 3,651 25 11,189 2 11,187 11.3 13.7 13.6 13.6 11.3

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 6, 2013

Offer for Sale | Power sector

Balance Sheet (Consolidated)

Y/E March SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Other long term liablities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Other non CA Total Assets 64,741 29,776 34,966 30,929 1 11,696 33,486 17,250 9,006 7,230 12,137 21,349 98,940 71,527 32,723 38,804 37,682 1 11,778 33,215 16,053 6,549 10,614 12,908 20,307 20 79,210 34,346 44,863 41,092 1 8,357 41,836 17,860 18,319 5,657 16,590 25,246 463 88,882 37,749 51,133 50,397 1 6,545 45,811 18,092 16,861 10,859 21,275 24,536 1,375 133,987 106,882 41,485 65,397 54,397 1 5,545 46,791 15,649 18,971 12,171 22,138 24,653 1,375 151,368 124,882 45,850 79,031 57,397 1 4,545 49,583 14,448 21,435 13,700 23,044 26,539 1,375 168,888 98,940 8,246 51,706 59,951 166 38,823 0 8,246 55,993 64,239 279 43,844 230 8,246 61,053 69,298 485 47,099 672 2,469 108,592 120,023 8,246 67,587 75,833 596 55,002 764 1,792 133,987 8,246 73,968 82,214 596 66,002 764 1,792 151,368 8,246 81,488 89,734 596 76,002 764 1,792 168,888 FY2009 FY2010E FY2011 FY2012 FY2013E FY2014E

108,592 120,023

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 6, 2013

Offer for Sale | Power sector

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Chg in WC & other adj. Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2009 9,307 2,495 (2,782) 3,402 2,566 3,052 1,751 3,402 8,508 3,478 5,030 1,890 15,361 17,250

FY2010 11,049 2,894 408 2,947 2,799 8,606 (82) 2,947 5,022 3,682 1,340 (1,198) 17,250 16,053

FY2011 12,392 2,720 (3,132) 503 3,044 8,433 3,820 503 3,255 3,654 (400) 1,807 16,053 17,860

FY2012 FY2013E FY2014E 13,137 3,107 941 3,873 3,323 9,989 1,612 3,873 7,903 3,669 4,234 231 17,860 18,092 13,329 3,736 (2,560) 2,984 3,279 8,242 1,000 2,984 11,000 3,669 7,331 (2,443) 18,092 15,649 14,840 4,366 (3,088) 2,934 3,651 9,533 1,000 2,934 10,000 3,669 6,331 (1,202) 15,649 14,448

(11,344) (14,009) (10,550) (19,477) (22,000) (21,000)

(6,192) (11,144)

(6,226) (13,992) (18,016) (17,066)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

February 6, 2013

Offer for Sale | Power sector

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.4 2.0 3.8 0.4 2.1 4.9 0.4 2.3 5.8 0.5 2.6 5.2 0.6 3.0 4.5 0.7 3.1 4.4 0.7 26 29 114 25 0.7 26 41 130 32 0.8 24 28 120 37 0.8 23 24 136 39 0.7 22 36 142 39 0.7 22 35 133 47 8.8 17.1 14.2 9.8 19.3 14.2 8.8 17.4 11.5 8.7 17.5 13.1 9.3 18.1 12.7 9.6 17.3 13.0 18.2 86.9 0.6 9.3 5.4 0.6 11.7 21.1 80.0 0.6 9.4 4.0
0.7

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 14.8 11.3 2.0 2.9 2.9 12.3 1.3 9.8 9.8 12.8 4.2 72.7 13.5 10.2 1.9 3.1 2.8 10.4 1.3 10.7 10.7 14.2 4.5 77.9 15.5 11.5 1.7 3.1 2.4 11.0 1.2 9.3 9.3 12.6 4.4 84.0 17.5 71.6 0.6 7.4 2.7
0.7

12.6 9.5 1.6 3.1 2.3 10.6 1.1 11.5 11.5 15.3 4.4 92.0 17.1 74.1 0.6 7.5 3.1
0.7

11.9 8.7 1.5 3.1 2.3 9.7 1.1 12.2 12.2 16.7 4.4 99.7 18.2 75.4 0.6 8.0 3.7
0.8

10.7 7.7 1.3 3.1 2.2 9.0 1.1 13.6 13.6 18.9 4.4 108.8 18.8 75.4 0.6 8.0 3.7
0.8

12.9

10.6

10.7

11.3

11.6

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 6, 2013

Offer for Sale | Power sector

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

NTPC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 6, 2013

Offer for Sale | Power sector

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production [email protected] [email protected] VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive [email protected] [email protected] [email protected] [email protected] [email protected] Head - Derivatives [email protected] Sr. Technical Analyst Technical Analyst Technical Analyst [email protected] [email protected] [email protected] VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

February 6, 2013

10