NTPC may open higher on strong Q2, stock up 41% YTD; should you buy, hold or sell?

NTPC shares are likely to open higher on October 30, a day after the company reported a positive second quarter of FY24. The company’s net profit jumped 38 percent on-year (YoY) on the back of better operational performance, lower cost, and higher operating margins. Revenue rose marginally as well.

NTPC is a distinctive play on thermal demand and transitioning towards renewable energy (RE), aided by its size and profitability, according to analysts.

“NTPC is poised to maintain its market share without requiring external equity,” said Nuvama Institutional Equities in its report. According to the brokerage, NTPC currently has most of its operational capacity (standalone) under the regulated model which enables it to pass on increases in costs, limiting the impact on profitability.

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Advantages for NTPC

Analysts are optimistic about NTPC’s thermal profitability improvement, given no significant losses related to fuel costs, improving plant load factor (PLFs); accelerated commissioning; and higher incentives. Additionally, NTPC’s strong focus on renewable energy is seen as a significant advantage. NTPC can leverage its thermal plants to blend in RE; ready access to human and financial capital; and risk framework, which protects against the downside, noted Nuvama.

While NTPC’s existing business earns a regulated return on equity (RoEs) of 18-19 percent on invested equity, the RE capex is on a competitive bidding basis, wherein the state-run enterprise. enjoys a 1–1.5 percent lower cost of debt compared to other private sector peers, given its balance sheet size and near-sovereign status. “This enables higher internal rate of returns (IRRs) despite competitive tariffs,” the brokerage said.

Should you buy the PSU stock?

Nuvama Institutional Equities has a ‘buy’ rating on NTPC stock with a target price of Rs 274. Earlier in October, international brokerage firm Bernstein maintained its outperform rating on NTPC with a price target of Rs 274 as it highlighted four major catalysts for the thermal PSU this quarter – commissioning of new plants, potential of winning new renewable energy projects, tenders for new plants and regulatory orders.

Within the thermal power generation sector, no other company is adding capacity other than NTPC, said Bernstein, adding that even in the renewables sector, no one has as much money as NTPC. “Renewables require 2-3 times the capex of a thermal plant, and an operating renewable plant does not throw enough cash to fund a new one. Hence, cash flow from the coal plants of NTPC will be ‘super-critical’ to meet India’s 50GW/year renewable capacity addition plans,” the brokerage note mentioned.

Also Read | NTPC Q2 result: Net profit surges 38% YoY to Rs 4,726.4 crore

NPTC shares ended 2.35 percent higher at Rs 237.10 on the National Stock Exchange on October 27, 2023. So far in 2023, the stock has risen over 41 percent, outperforming the benchmark Nifty.

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