NTPC Rating ‘buy’; focus on ESG compliance augurs well for prospects

NTPC’s thrust on better compliance and disclosures, integrated reporting and target-based sustainability strategy is aimed at improving its ESG compliance to global requirements. The company’s FY20 integrated annual report is based on International Integrated Reporting Council (IIRC) standards (along with references to other frameworks) and contains key sustainability-related information. Its recently-released sustainability targets through a plan named The Brighter Plan 2032, which focuses on seven key areas, is a step in the right direction.

With its vision to become one of the world’s leading integrated power companies by CY32, a target-based approach was necessary and the CY32 plan (combined with the existing target of 130GW capacity by the same year) is designed to meet the purpose. Focus on the plan is expected to help the company improve its ESG scores and bring it at par with some of its global peers. Maintain Buy with an unchanged target price of Rs 165.

Focus on improvement in ESG compliance: NTPC’s portfolio of coal assets has been a major factor behind its currently sub-optimal ESG ratings. However, the company is working towards improving its ESG compliance. Key areas of focus in the past few months have been: (i) improved disclosures: NTPC’s FY20 annual report adheres to standards laid down by the IIRC; (ii) sustainability-improvement targets set through The Brighter Plan 2032: NTPC’s vision to become one of the foremost global power companies by CY32 calls for significant thrust on clean, green and sustainable growth; (iii) improved compliance and continuous pursuit of superior efficiency parameters; (iv) continued thrust on CSR and community development; (v) management becoming more vocal about the company’s already existing sustainability-related achievements.

The Brighter Plan 2032: NTPC’s The Brighter Plan 2032 sets short-term goals for CY22 and long-term for CY32 in seven focus areas: (i) de-carbonisation & air emissions control; (ii) water & biodiversity conservation; (iii) health and safety; (iv) circular economy; (v) community development; (vi) strong finance & ethics; (vii) sustainable supply chain.

Green, sustainable growth, focusing on maximising stakeholder value: NTPC’s plan to achieve 130GW capacity by FY32 includes increasing the ‘clean sources’ pie of its capacity mix, i.e. renewables (solar, wind, hydro) and gas from ~17% currently to 40.2% in FY32, aiming to become the country’s largest RE player. It is also taking several initiatives to reduce carbon footprint/emissions from its existing coal-based plants while working on several other areas that are ultimately aimed at maximising stakeholder value.

Maintain BUY: With standalone EPS for FY21e/FY22e/FY23e at Rs12.3/ 16.5/ 18.5, and consolidated EPS at Rs 14/18.5/21, respectively, we maintain Buy. Stock is trading at 5.9x FY22e standalone P/E, 0.7x P/BV and 6.5% dividend yield.