VALUE STOCK BUY AT BOTTOM

Buy NTPC – Target Price Rs.204

 NTPC is recommended to buy with a target price of Rs.204 over one year. The stock is
currently traded around Rs.164.
 Company’s 2QFY12 performance is expected to be weak because of lower than expected
power generation in the quarter due to unforeseen disruption of operations in its Ramagundamand Korba power plants.
 However, the issues could be sorted out soon and operations would be resumed shortly.
Considering the disruptions, EPS estimates for FY12 has been reduced marginally.
 Disruptions in operations have weakened the stock price in the market and it seems that this is an attractive opportunity to accumulate the stock.
 Resumption of operations and capacity additions would drive the stock price up over a few months time. Additional capacity of 3.6 GW is expected to be added in FY12.
 The stock is well positioned in terms of fuel security at times of coal shortage. This coupled with strong balance sheet and earnings visibility, the stock appears to be a good defensive play.
 After the correction, valuation of the stock is also looking very attractive. At the current level, the stock is trading very close to the trough valuation. Currently, the stock is traded at 1.7 multiple of FY13 expected P/BV, which is lower than its seven year average.
 Risks to the target price are delay in completion of new power plants and lower plant availability due to fuel shortage.

BUY HINDALCO TARGET PRICE Rs.186

 Management has reiterated commissioning of Mahan project by December 2011. The project
is at an advanced stage of implementation.
 Operations at Renukoot and Renusagar projects are going smooth.
 Mahan project’s production guidance is 5 – 8% higher than market estimates.
 Mahan project’s coal block is expected to get environmental clearance shortly. The stock may be re-rated as it happens.
 Sharp decline in aluminium price due to volatile macroeconomic situation could be a major risk to the target price. However, this is unlikely to happen due to strong cost support and the company could sustain its earnings.