ntpc, the laggard

I noted here that the state of affairs for NTPC was poor based on what I saw then. What has changed since then? Well, not much.

This company continues to surprise by not budging. You can see it to believe it:

It has poured in capex of about Rs.1,131 billion in the last 10 years. This capital does not convert into much of revenue; it is partly due to the nature of its business. On top of that return of capital and equity are not that good. Its after-tax return on capital is noted below:

You can calculate this ratio in various ways; but the point I am driving is, it is quite low. 

NTPC has to improve its operating margins significantly or generate much higher revenue per rupee of capital invested. 

Now it is available at a healthy dividend yield of over 4%. If you consider NTPC as a stable firm and rely on its dividend paying ability until perpetuity, the market is pricing dividend growth of 5.31%; historically it has grown more than twice that rate.

You can see the potential for value based on the dividend growth:

Of course, this comes with its set of assumptions on growth and cost of equity. But that's not much of a deal. The question is - is NTPC a stable firm? In my view, it is not; yet.

So, we come back to its cash flow generating ability, and I am yet to see efficiency here.