NTPC - The Smart Investor - Business Standard

NTPC Ltd Company Update 25 November 2010ValuationWe use FCFF as the primary tool for valuation of the company. We have assumed fiveyear intermediate growth of 7.5%, and terminal growth of 5%.Fig 1 - Valuation assumptionsAll figures in Rs mnValuePresent Value of Free Cash 1,863,653Less: Net Debt (incl. Investments) 203,535Add: Mkt premium of OTSSbondsEfficiency gain from coal mining 39,218 Assumed DCF valuationEquity Value 1,699,336O/S no. of shares FY04 (mn) 8,245Per share value (Rs) 205WACC CalculationAvg. cost of debt 8.0% Marginal tax rate 16.7%Post tax cost of debt = 6.7% 10 yrs bond yield rate 8.0%Target debt:equity = 1.00 Equity risk premium 5.0%WACC = 9.5% Market rate of return 12.3%Terminal Growth (wef FY2017) 5.0%Medium Term Growth (FY13-17) 7.5%Source: RCML research5