Motilal Oswal has maintained a 'Neutral' rating on NTPC, setting a target price of ₹378. While the brokerage sees long-term potential in rising thermal power demand and policy support, it remains cautious due to near-term earnings pressure and current valuations.
Motilal Oswal has kept its 'Neutral' rating on NTPC shares, assigning a price target of ₹378. The brokerage's assessment reflects a mix of optimism regarding long-term power demand and caution regarding the company’s immediate financial performance.
Policy Changes Support Thermal Power
A key factor identified by the brokerage is the shifting energy policy landscape. The government is phasing out the waiver on Inter-State Transmission System (ISTS) charges for renewable energy projects over the next four years. This policy change is expected to improve the cost-competitiveness of thermal power compared to green energy options, which previously enjoyed significant transmission cost advantages.
Additionally, the brokerage has raised its base-case power demand growth estimate to 6%, up from the previous projection of 5%. This higher demand environment creates a favourable backdrop for thermal power producers like NTPC.
Expansion Strategy and Risks
NTPC continues to pursue a significant capacity expansion plan, with a target to add approximately 9.5GW by the 2027 fiscal year. A notable part of this strategy is the focus on brownfield expansions—increasing capacity at existing sites—which allows the company to add roughly 15GW without the need to retire current assets. This approach helps the company leverage its existing infrastructure effectively.
Despite these growth plans, analysts have pointed to potential challenges. While the expansion includes about 8GW of renewable capacity, there are concerns regarding potential risks in executing the renewable segment. Furthermore, while the long-term outlook remains supported by the country's rising power requirements, the brokerage highlighted that sluggish earnings growth in the near term and the company's current stock valuation lead to a more cautious, wait-and-see stance.
What Investors Should Monitor
For investors, the key monitorables moving forward include the actual pace of capacity commissioning and whether the company can maintain profitability amid the transition to higher renewable capacity. Monitoring quarterly earnings updates will be essential to see if the near-term sluggishness persists or if efficiency improvements help stabilize margins. Additionally, any updates on the execution of the renewable capacity targets will be a significant indicator of the company's long-term success.