Buy NTPC, target Rs 242: Merrill Lynch feb 5

Merrill Lynch has maintained buy rating on NTPC with target price of Rs 242, in its February 01, 2008 report. The report says, "Post a 39% fall in the stock over the last 2 weeks, we rate NTPC as Buy with a PO of Rs 242 as valuations have sobered and the company is on track to double its size by FY12E with premium RoE (approx 20%) in an environment of potentially volatile RoEs as markets open up. 3Q08 Rec. PAT growth was 14.3%YoY, while reported PAT showed a 15% fall on exceptional charges. Post the results call, we reiterate that NTPC is building a platform for faster growth, with 42% growth in FY08E capex. MLe NTPC capex for FY08E of Rs 111 billion (+42%YoY). It has accelerated order placements for XI Plan and MLe all the projects ex-gas & super-critical to be ordered in FY08, improving the visibility of double-digit growth. MLe new capacity adds of 2GW in FY08E (+17%YoY). Concern: delay of 1 yr in production (end FY09E) at its captive mine due to land acquisition problems & delay in new plants. Capex is value accretive help shift cash (yield 8%) to power assets (RoE 20%). Risk: Likely end to the negotiated project allocation from FY12E, potential cut in RoE with likely improved demand-supply gap of power, potential entry into unrelated businesses (boilers) & increased competition from private sector," says Merrill Lynch report.