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NTPC Offer for sale: Our view

Feb 6, 2013

Continuing with its disinvestment plan to curb India's fiscal deficit, the government has come out with an offer for sale for power major National Thermal Power Corporation Limited.(NTPC). The government will be putting up 783.2 m shares of the company up for sale. This represents nearly 9.5% of NTPC's paid up equity share capital. With this stake sale (offer for sale), the government's stake would come down to 75%. This sale will commence tomorrow i.e. February 07, 2013 at 9.15 am and will close at 3:30 pm on the same day.

NTPC's stock closed at a price of Rs 152.3 on February 6. The floor price for the offer for sale is set at Rs 145. This is a discount of about 4.8% to the today's closing level.

Given NTPC's market share and leadership position in thermal power generation coupled with the fact that it is one of the most efficient players in the sector, the company long term prospects are adequately sound. While there may be short term hiccups along the way, we believe those, including sourcing of coal, pricing of power and collection of dues from SEBs will be eventually ironed out. It also seems like the negatives have been priced into the stock's current valuations. This too, especially when compared to the historical valuations. As of the closing price of Rs 152.3, NTPC's stock was trading at a multiple of about 1.6 times its book value.

Data Source: ACE Equity, Equitymaster

We have earlier reiterated our Buy recommendation on the stock. Considering the attractive valuations for the offer for sale, we would recommend investors to 'Apply' to the issue from a long term perspective. However, please keep in mind that no stock should form more than 5% of your overall portfolio.

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