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[dudette]

The Q1 performance of NTPC remains below our expectation. This dismal performance is largely attributable to the planned shut down of some plants during the quarter and also due to consistently pressure on supply of gas for the gas stations. However the commercialization of 1000 MW of capacities at Kahalgaon
and at Sipat will add to the volume of the company during FY09.

We expect 8% CAGR in power tariff of the company over FY08-FY10 based on the capex and rise in the fuel cost. We have not factored in the tariff rise due to extra provision made for the employee cost and interest cost due to depreciation of currency. This would translate in to 12% CAGR in sales and 13% CAGR in
reported net profit over FY08-FY10E. The stock is trading at EV/EBITDA of 10.6x and 9.4x respectively to our FY09E and FY10E estimates. This is in contrast to the current EV/EBITDA of Power Grid at 14.2x and 12.9x to our estimate over the same period. Based on our DCF based valuation method we maintain our BUY recommendation on the stock with an 18 month target price of Rs 250.

Business Background
NTPC is the largest power generating company of the country with an installed capacity of 29,394 MW (~19% of India’s total installed capacity). It is presently operating 15 coal based, 7 gas based and 4 joint venture power projects with nationwide presence.

NTPC contributed 28.5% of the country’s entire power generation during the year 2007-08 and plans to become a 75,000 MW power company by 2017. NTPC has moved ahead in diversifying its portfolio to emerge as an integrated power major with presence across the entire energy value chain. NTPC’s core business is power generation. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad.