Is NTPC LTD Stock A Good Investment – NTPC Ltd (NSE: NTPC) is India’s largest power generation company accounting for over 20% of the country’s total electricity output. As a central public sector undertaking, NTPC enjoys a strong market position and stable business model. However, with sectoral challenges and disruption from green energy transition, should investors look at NTPC stock as a good investment bet? In this detailed analysis, we assess NTPC’s business fundamentals, financial performance, growth drivers, risks and valuations to determine if NTPC stock fits the bill of a good investment.
Overview of NTPC’s Business Model
Let us first understand NTPC’s business profile:
- Incorporated in 1975, NTPC generates over 20% of India’s power output
- Has an installed capacity of 70 GW comprising coal, gas, solar and hydel plants
- Plans to achieve 60 GW renewable energy capacity by 2032
- Supplies electricity to bulk customers like state discoms and corporates
- Also involved in power distribution, equipment manufacturing and coal mining
- Operates on a cost-plus model with assured returns regulated by CERC
- Enjoyed ‘Maharatna’ status with over 70% market share in IPPs
NTPC operates on a robust business model with assured returns, strong financial profile and dominant player advantages. But sector outlook remains challenging.
Detailed Analysis of NTPC’s Recent Financial Performance
Let us look at some key metrics to analyze NTPC’s financial performance in last 3 years:
- Revenues have grown at 5% CAGR from Rs 92,179 crores in FY19 to Rs 122,672 crores in FY22
- EBITDA has expanded steadily from Rs 28,329 crores to Rs 42,364 crores in same period
- EBITDA margins have averaged around 35% reflecting the stability and cost efficiency of operations
- Net profit increased from Rs 14,034 crores in FY20 to Rs 15,899 crores in FY22
- EPS rose from Rs 14.38 in FY20 to Rs 16.25 in FY22
- NTPC has robust return ratios with 3-year average RoE of ~17% and RoCE of ~15%
- Dividend payout has averaged 45-55% in last 5 years
- NTPC enjoys ‘AAA’ credit rating indicating strongest credit profile
Overall, NTPC boasts a stable and profitable business model with industry-leading margins and return ratios. Balance sheet is rock solid with high credit rating. But growth outlook is modest.
NTPC Share Price Trends and Valuation Analysis
- NTPC share price has remained largely rangebound in Rs 140-170 band over last 3 years
- Market Cap stands at Rs 1.4 lac crores as of Nov 2022 compared to Rs 1 lac crores in Nov 2019
- Trailing P/E ratio of 8.5x indicates reasonable valuations at current price
- Price to book value of 1.1x is also not demanding for this well managed utility major
- Dividend yield of ~4.5% offers some regular income to investors
NTPC stock appears reasonably priced currently based on historical valuation trends. But upside potential seems limited.
Growth Outlook and Potential Risks for NTPC
NTPC has several drivers that can support modest growth over next 5 years:
- Gradual capacity addition in thermal power projects to boost generation output
- Foray into renewables space with plan to have 60 GW green energy capacity by 2032
- Potential monetization of real estate assets to unlock value
- Acquisition of stressed private thermal assets under NCLT proceedings
- Strong financial position allows NTPC to capitalize on inorganic growth opportunities
However, some key risks to consider:
- Power sector outlook remains challenging with slow demand growth and payment delays
- Renewables expansion by private players eating into thermal power share
- Delay in capacity expansion and subdued plant load factors
- Regulatory changes regarding returns and tariff structures
- High receivables affecting cash flows and limiting dividend payouts
To summarize, short to medium term growth outlook for NTPC appears modest at best despite some long term drivers.
The Final Verdict: Should You Invest in NTPC Stock?
NTPC’s strengths and upside potential can be summarized as:
Pros – Dominant market position, stable and profitable business model, robust return ratios, strong credit profile and reasonable valuations.
Cons – Limited earnings growth visibility, long project gestation period, competition from renewables eating away market share and power sector headwinds.
Overall, NTPC remains a stable business that offers modest total return prospects driven by its healthy dividends. But investors need to temper return expectations as capital appreciation potential seems limited in the medium term.
NTPC stock is suitable for conservative investors looking for low volatility and regular income. It can be held as a defensive stock providing stability to overall portfolio. But investors looking for growth may find better opportunities in other sectors.
Frequently Asked Questions on NTPC Stock
Is NTPC a good stock to buy now?
NTPC is a reasonably good stock to buy currently for investors looking for stability and regular dividends rather than high growth. Valuations are modest, balance sheet is strong and dividend yield of 4.5% offers steady income. But upside potential is limited to high single digit returns.
What is the target price for NTPC shares in 2023?
Most analysts have a neutral outlook on NTPC stock with average target price of Rs 180-200 for 2023. This indicates limited upside from current level of Rs 165. Share price is expected to remain rangebound with 5-10% returns coming largely from dividend yield.
Is NTPC a value pick in the power sector currently?
Among power sector stocks, NTPC can be considered a relatively good value pick currently given its reasonable valuation of 1.1x P/B, strong credit profile, healthy return ratios and stable business model. This makes it stand out compared to peers trading at higher multiples or facing more volatility.
What is the ideal strategy for buying NTPC shares?
Given the muted growth outlook for NTPC, the ideal strategy is buy on dips rather than lumpsum buying at current levels. For long term investors, accumulating in small lots on every 5-10% decline would help gain exposure at better valuations and manage risk.
Should I buy more NTPC stock on current decline?
Long term investors who already hold NTPC stock can consider buying more on the current dip to avg down their purchase cost. But portfolio allocation to NTPC should be limited to 5-10% for well balanced portfolio. Use declines to accumulate in staggered manner.
Is the dividend payment of NTPC stock sustainable?
NTPC has consistently paid around 50% of its profits as dividends over last decade. The high dividend payout is supported by its stable earnings profile and strong balance sheet position. NTPC dividend payment is likely to remain sustainable in the foreseeable future barring any large acquisition plans or major regulatory changes.
What are the key concerns regarding NTPC for investors?
Key investor concerns are limited earnings growth visibility given power sector headwinds, receivables stress affecting cash flows, execution delays in capacity expansion, competition from renewable energy players and changes in regulatory framework regarding tariffs and returns.
Should I book profits in NTPC shares post the recent rally?
NTPC stock has risen nearly 15% from recent lows of Rs 140 touched in Oct 2022. Investors who hold the stock with short term horizon can consider booking partial profits on rallies above Rs 180-185 mark. However, long term investors can continue holding given modest upside potential.
Does NTPC have multibagger potential in next 5 years?
NTPC share price is unlikely to double over next 5 years owing to its mature utility business and limited growth visibility. The stock may deliver 10-12% total CAGR returns driven by healthy dividend payouts of Rs 5-6 per share. Strong multibagger gains cannot be expected from NTPC in the foreseeable future.
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