NTPC, world's top rated power stock, seen recovering from 10-month low

NTPC is the world’s most-loved power producer by equity analysts, and yet the shares of India’s largest utility are trading near a 10-month low. What gives?
 
The New Delhi-based company is the top rated stock among the world’s largest utilities, with a recommendation consensus of 4.9 on a Bloomberg scale where 5 is a unanimous buy. Analysts expect the company to wring more profit from soon-to-be acquired hydro-power assets, helping it lift its earnings and share price.
 
“The hydro assets to be acquired offer significant scope to improve efficiency and boost profitability,” analysts at SBICap Securities  wrote in a recent note after a government panel approved the sale of stakes in generators THDC India and North Eastern Electric Power to NTPC.
 
NTPC trades at 8.5 times projected earnings for the next fiscal year, the fourth-cheapest among members of India’s S&P BSE Sensex. All but one of the 26 analysts covering the company rate it a buy, with a return potential of 34 per cent, the third-highest among Sensex members.
 

Profit took a hit over the last two years due to disruptions in coal supplies, but the “fundamentals are now priced in and valuation is near historic lows,” said Rupesh D Sankhe, an analyst at Elara Capital India Pvt. in Mumbai.
 
“Capacity addition in the next two years will drive earnings growth.”
 
Unlike private sector rivals, NTPC’s revenue doesn’t depend onIndia’s demand for power — which slumped for a fourth straight month in November.
 
The company, which supplies power to state electricity boards, is assured a 15.5 per cent return so long as it keeps its plants running 85 per cent of the time, according to Rohit Natarajan, an analyst at Antique Stock Broking.
 
“Private sector players have systemic issues of some or the other form, while NTPC has remained unscathed and has a matured predictable business model,” said Natarajan. “The consensus view is completely justified.”