On Thursday, the Indian government will sell off 783m shares in National Thermal Power Corporation (NTPC), a 9.5 per cent stake.
A floor price of Rs145 per share has been announced, which is a discount over the current market price. But is this a good investment? And where does it leave the government’s disinvestment plan?
Shares in NTPC, the power producer, fell 2.4 per cent on Wednesday, closing at Rs151.80 ahead of the offer for sale. Analysts say a target price around Rs165 per share is fair value in the medium term.
Bhargav Buddhadev, vice president institutional equities at Ambit Capital, sees tomorrow’s sale as an investment opportunity. He told beyondbrics that shares in NTPC are a better bet than private sector power companies. The company’s project pipeline is one big advantage: “NTPC is looking to add up to 14 gigawatts in its twelfth five-year plan, which ends in the 2017 fiscal year. Of this, 85 per cent of the projects have already commenced construction. Compare this with the private sector, where companies have announced plans but mostly caved or delayed after that.”
Likewise, Saurabh Mehta at Daiwa Capital Markets, has labelled the offer for sale a “buying opportunity”. In a note to clients on Tuesday, he wrote:
On the back of the robust 7.3GW [gigawatts] of capacity additions on a standalone basis that we forecast for NTPC from FY12-15, we look for its earnings to increase at a CAGR [compound annual growth rate] of 10% over the period, compared with the 4% CAGR recorded from FY09-12 (when only around 3.1GW was added).
Analysts at Angel Broking estimate NTPC’s sales for the year ending in March will be Rs728.1bn and for the following fiscal year Rs819.5bn. Earnings per shares estimates for the 2013 and 2014 fiscal years are Rs12.0 and Rs13.4, respectively.
Thursday’s offer for sale is just one part of the Indian government’s disinvestment strategy, which aims to reduce the budget deficit. Given that Central Public Sector Enterprises constitute 18.9 per cent of the total market capitalisation of companies listed on the Bombay Stock Exchange and 18.86 per cent of those on the National Stock Exchange of India, there is clearly significant potential for fundraising.
Anubhati Sahay, senior economist at Standard Chartered Bank, told beyondbrics that the government is aiming to earn Rs300bn ($5.6bn) from disinvestment in the fiscal year ending in March. The NTPC sale is expected to raise Rs120bn, which leaves the government Rs90bn short of its target.
Sahay said: “We have heard from various officials that there are four more stake sales that are planned before the fiscal year ends. They said the government might miss the budgeted target by about Rs30bn, so that means Rs60bn more will be raised by disinvestment, via OFS [offer for sale] or other routes.”
Looks like the government’s disinvestment strategy is making progress. But will this be enough to dent that budget deficit? Currently the government target is 5.3 per cent.
India boosts reform with NTPC share sale, FT
Oil India offer: a chance to buy? beyondbrics
Guest Post: India’s current account deficit limits scope for more rate cuts, beyondbrics
Get alerts on Emerging markets when a new story is published