Factors that make NTPC stock pick of the week

NTPC has continued to show strong performance amid covid. While its revenue reported a modest 2% y-o-y growth during 2020-21, its adjusted net profit zoomed by 22%.Investor interest in thermal power producers like NTPC is low at present due to various reasons. Though the recent challenges caused by the pandemic induced disturbances have reduced power consumption, it is expected to pick up once the situation normalises. Domestic power demand is expected to jump up in the coming decade due to an increase in household income and increased use of consumer durables. Industrial demand should also improve as a result of the government’s thrust on local manufacturing like PLI schemes, localisation of defence production, etc.The fear that renewable energy will totally replace thermal power is another reason. However, analysts say that this fear is overdone. Thermal power capacity additions are not taking place at the required speed due to environmental concerns which is good news for companies with large thermal power capacities. Though the renewable energy capacity is coming up, it won’t be able to meet the booming power demand and India has no option but to rely on thermal power. Bottoming out of the plant load factor (PLF) of NTPC’s coal-based plants to 77.1% in 2020-21 from 69.5% during 2019-20 is a clear indication of the same. Increased coal production by Coal India has helped thermal power plants to replenish their coal stock and improve their PLF further. To benefit from this, NTPC is also adding new thermal power capacity. It commissioned 2GW of plants during the last quarter of 2020-21 and plans to add 4.6GW in 2021-22 and another 5.2GW in 2022-23.Pandemic has also reduced the new capacity additions in renewable energy space, mostly due to lack of funds. However, NTPC continues with its capacity additions and plans to increase its renewable energy capacity by 14GW over the next 3-4 years. It plans to take its renewable capacity to 60GW by 2032 from the earlier target of 32GW. The increased renewable energy footprint should help it get better valuations due to improvement in its ESG metrics. Management has also indicated that it may also take steps to monetise its renewable energy subsidiary.Despite the market rally, NTPC continues to languish at lower levels making it more attractive. It is now trading at an attractive trailing PE of 7.82 and dividend yield of 2.72. The downside from current level is also limited due to its regulated nature of business.8386702383867030 Selection MethodologyWe pick up the stock that has shown the maximum increase in “consensus analyst rating” during the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena, ET Prime)

from Economic Times https://ift.tt/3dmmpUJ