NTPC shares extend gains to hit new highs; is this multibagger PSU headed for 30% correction?

State-run multibagger player NTPC Ltd reported a strong set of numbers in the quarter ended on June 30, 2024 but the brokerage firms continue to remain positive on the stock. However, some of the analysts have a 'Sell' rating on the stock, indicating a sharp 30 per cent drop.
 

Brokerages, which are positive on the stock, gave the Q1FY25 earnings a thumbs up, and pushed their target prices northwards on the back of RoE expansion plans, capacity addition and upcoming IPO of its renewable energy arm. However, the pessimistic ones suggest that all positives are mostly priced in and the stock is trading at lofty valuations.
 

Q1FY25 standalone adjusted PAT grew 14 per cent YoY to Rs 4,200 crore despite no change in regulated equity. Consolidated PAT grew 12 per cent YoY to Rs 21,300 crore, as subsidiaries and JV share in profit rose substantially. The full effect of incentives earned from higher PLF/PAF and shift to new CERC norms to start reflecting by H2FY25, said Nuvama Institutional Equities.
 

"With rising commissioning of projects in FY25–27—thermal/RE at 7GW/16GW—coupled with CERC incentive benefits, we retain estimates. Rising core RoEs and renewable subsidiary IPO stay key triggers for the stock. We are rolling over to FY27E with P/BV of 2.9 times lifting target price to Rs 458," it added with a 'buy' rating.
 

NTPC reported good results. For the quarter that just went by, its installed capacity increased by 3.5 per cent YoY and generation increased by 11 per cent YoY with coal plant PLF increasing by 300 bps YoY to 80 per cent. The company closed the quarter with consolidated power capacity of 76 GW and aims to reach a capacity of 130 GW by 2032, said Antique Stock Broking.
 

"Currently, the NTPC group has 21 GW of under-construction capacity with 54 per cent of it being hydro and renewables, which are expected to be commissioned in phases by FY27E. This is expected to result in EPS growth of 14% over FY24-27E. We resume coverage on NTPC with a 'buy' rating and a target price of Rs 458, valuing the company at 2.5 times 1HFY27E BV," it said.
 

Shares of NTPC rose more than 2.58 per cent during the trading session on Wednesday to Rs 417.40, hitting its new 52-week highs, with a total market capitalization of more than Rs 4.05 lakh crore. The stock has settled at Rs 406.90 in the previous trading session on Tuesday.
 

Shares of NTPC have surged nearly 425 per cent from their covid-19 lows, while the stock has nearly doubled investors' wealth from its 52-week low at Rs 211.85 hit in August 2023. The stock has gained about 35 per cent in 2024 so far, while it is up 13 per cent in the last one month.
 

The plant load factor (PLF) for coal-fired plants stood at 80.39 per cent versus national average of 76.19 per cent driven by higher energy and peak power demand, said JM Financial. "Given the revival in margin-accretive thermal capex and momentum in new growth areas viz. nuclear power and coal mining, we maintain our 'buy' rating with a revised target price of Rs 451," it said.
 

NTPC currently has 9.6 GW of thermal and 9.2 GW of renewable capacities and 2.2 GW of hydro capacities under construction, even as the company explores opportunities in nuclear power (2.8 GW under JV with NPCIL) with another 26 GW of capacities under various stages of planning, said Kotak Institutional Equities, which sees a 30 per cent correction in the stock.
 

"We believe that NTPC’s CMP sufficiently captures all its growth aspirations, while disregarding the risks of lower-than-expected" returns from renewable assets. We assign a multiple of 1.5 times for the regulated return business, and 1.2 times for the renewable business, yielding a revised fair value of Rs 290 (from Rs 275)," Kotak added with a 'sell' rating.
 

Among the global brokerage firms, Citi has maintained a 'buy' rating on the stock and has raised target price to Rs 467. Similarly, Jefferies has also maintained 'buy' on the stock pushing the target price to Rs 465 per share.