NTPC OFS

The government is  selling 5% stake (upto 10% with green shoe portion)  in NTPC OFS at a floor price of Rs 168 per share through a two-day offer-for-sale (OFS)  which has started on 29/08/17. 
NTPC OFS was expected to fetch  Rs. 7000 crore to the Government based on base offer and at the maximum was expected to fetch  Rs. 14000 core considering the green shoe option. However with Institutional bids on day 1 coming for only about 41% of the green shoe option, the total green shoe portion stands reduced to about 41% from earlier 100% and total amount raised could be around 9700 crore. So far, the biggest OFS by the government has been the Rs 22,500 crore OFS by Coal India in 2014-15.

NTPC OFS Day 2 Closing

NTPC OFS retail portion was subscribed 0.73X (incldg over subscription). Hence all Investors to get shares at 5% discount to the bid price. Investors who applied at cutoff to get shares at 159.6. NTPC closed today at 167.8

About NTPC OFS
Issue Period29 Aug 2017 to 30 Aug 2017
/August 29, 2017 for Non Retail Investors and August 30 ,2017 for Retail Investors and Non Retail Investors who choose to carry forward their bids
Offer Size – No. of Shares57,93,76,163
Base Offer Size – 412273220 shares and Oversubscription Option 167102943
Total Offer Size in Rs.9733.5 crore at  Floor Price
Offer Size for Retail Investors11,58,75,233
Base Offer Size – 8,24,54,644 shares and Oversubscription Option 33420589.
Offer Size for Retail In Rs. 1850+  Crore 
Offer Size for Non Retail Investors46,35,00,930
Base Offer Size – 32,98,18,576 shares and Oversubscription Option 13,36,82,354
Offer Size forNon  Retail In Rs. 7786+  Crore 
Face Value10
Floor PriceRs. 168 with 5% discount to Retail
Lot Size1
Tick Price0.05
Minimum Bid Quantity1
Allocation MethodologyPrice Priority

Retail investors, for whom 20 per cent of the NTPC OFS would be reserved, will get a further discount of 5 per cent in the offer for sale (OFS). Retail investors are those who put in bids for less than Rs 2 lakh. 

About NTPC :
  • NTPC established in 1975 is India’s largest power utility with an installed capacity of 51,671 MW and plans to become a 130 GW company by 2032.
  • NTPC became a Maharatna company in May 2010, one of the only four companies to be awarded this status. NTPC was ranked 400th in the ‘2016, Forbes Global 2000’ ranking of the World’s biggest companies.
  • NTPC accounts for 17.73% of the total national capacity but it contributes 24% of total power generation due to its high efficiency
  • NTPC came out with an IPO in 2004 consisting of 5.25% as fresh issue and 5.25% as offer for sale by the Government of India. Subsequent FPO in Feb, 2010 and OFS has reduced Government stake in the company to 69.74%.
Financials:

Quarterly Results (Figures in Rs. Crore):

COLUMNNAMEJun 2017Mar 2017Dec 2016Sep 2016
Gross Sales19879.3220416.6719395.9219241.47
Excise Duty0.000.000.000.00
Net Sales19879.3220416.6719395.9219241.47
Other Operating Income0.000.000.00156.47
Other Income890.88832.24250.17190.62
Total Income20770.2021248.9119646.0919588.56
Total Expenditure14839.2215736.8714169.8914006.56
PBIDT5930.985512.045476.205582.00
Interest895.60897.92909.03889.83
PBDT5035.384614.124567.174692.17
Depreciation1570.001606.171485.311434.15
Tax751.87783.74551.99685.57
Deferred Tax95.34144.8161.1576.48
Reported Profit After Tax2618.172079.402468.722495.97
Extra-ordinary Items0.00-541.260.000.00
Adjusted Profit After Extra-ordinary item2618.172620.662468.722495.97
EPS (Unit Curr.)3.182.523.003.0
Book Value (Unit Curr.)0.000.000.000.00
Dividend (%)0.000.0026.100.00
Equity8245.468245.468245.468245.46
PBIDTM(%)29.8327.0028.2329.01
PBDTM(%)25.3322.6023.5524.39
PATM(%)13.1710.1812.7312.97


Annual Results
(Figures in Rs. Crore):

Rs. In Crores

Particulars

Mar-17Mar-16Mar-15
Net Sales82080.8273426.4480611.94
Total Income83819.177475882972.74
Operating Profit24206.1219755.1919689.8
Interest3752.83366.033668.98
Gross Profit20453.3216389.1616020.82
Depreciation6692.775771.245564.61
Profit Before Tax13760.5510617.9210456.21
Net Profit 10719.6410801.159986.34
Extraordinary Items-37.07-98.75134.74
Adjusted Net Profit10756.7110899.99851.6
Equity Dividend (%)47.833.525
EPS 12.4712.7711.59
Book Value 118.66111.0699.56
Current Market Price168.5
PE13.51
P/B1.42
NTPC OFS: Day 1 Subscription Figures

NTPC OFS was oversubscribed 1.41 times with institutional buyers put in bids for 46.35 crore shares (Rs 7,800 cr). This amounted to 1.41 times the 32.98 crore shares base offer and NTPC issue now stands in same proportion for retail as well. Thus green shoe option has been subscribed to extent of 41% only.

Assessment:
  • NTPC is  the foremost Power Generation Company in the country.
  • NTPC has a steady capacity addition program in place and renewable energy is on its radar. The company has an ambitious plan to bring down Generation from Fossils fuel to 30% levels by 2032.
  • Moody’s has a ‘Baa3’ rating on NTPC with a positive outlook.
  • NTPC, which is the largest power generation company with annual generation capacity of 44000 MW, earns a regulated return. 
  • NTPC is permitted  to earn regulated return of 15.5%  by Central Electricity Regulatory Commission. However significant investment in yet to be commissioned plants has resulted in NTPC earning a overall lower return on the capital deployed.
  • With NTPC going full swing on commissioning of new capacity additions this ratio is likely to change and thus is likely to drive up its  regulated book and improve ROE.
  • Analysts expect that step-up in commissioning activity is likely to drive  NTPC earnings growth over FY18-19 in the region of 18%.
  • In a recent analyst meet the NTPC management mentioned the possibility of ts regulated capital (capital that generates 15.5 percent regulated returns) by 50 percent over the next three years and 100 percent by the end of five year.
  • NTPC operational performance in terms of Plant load factor and cost of per unit power has been impressive and company’s coal linkages are well in place.
  • NTPC green shoe option of additional 5% shares was not fully ;lapped up by institutional investors and NTPC had to settle with additional 40.5% (in place of maximum 100%) of over subscription on the base offer. 
  • On the risk factors, NTPC growth in the past has been lower or moderate and there are environment concerns from coal based power plants. However NTPC is already shifting gear and is taking the lead in renewable energy
  • On Feb 24,2016 GOI had sold 5% stake in NTPC through an OFS. The issue received lukewarm response form retail investors and the retail lapped up 8.5% shares only against their fixed quota of 20%. It was the insurance institutions that bailed the issue as it raised about Rs 5000 crores at that time. The floor price for the issue was Rs. 122/- at that time.
  • The participation of  Life Insurance Corporation  in current OFS may have been could be limited, as it already owned owns 11.7 % stake in NTPC and due to IRDA regulations, insurance company cannot own more than a 15% stake in a company.
  • Shares of NTPC closed at Rs168.50, down 2.80% over the previous close on the BSE on Tuesday (29/08/17). 
  • At the discounted OFS retail price of Rs. 159.6, NTPC is reasonably priced looking at its prospects and P/B and PE ratios and expected improvements in Return on equity in near future. 
  • I intend to apply in NTPC OFS in small to reasonable numbers to get a allocation at the most at marginally above the floor price with expectation of reasonable return in short to medium term and perhaps shall keep some quantity for long term. I expect this stock to give moderate returns something more than my debt mutual funds over a medium to long term.
  • In past NTPC has given very moderate returns. However past is all not always a bearing on the future performance of the stock and future of NTPC from an investors point of view looks to take an upturn even if small.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.