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The Government is trying to reduce the fiscal deficit through various ways and one of the most important of these is the disinvestment of its stake in various state held companies. Recently, it sold a 10% stake in Oil India which fetched it around Rs 3100 crore. It is now taking a big leap and offering more than 78 crore equity shares of power major National Thermal Power Corporation (NTPC) to the public. This sale of a 9.5% stake in NTPC is expected to fetch it Rs 12000 crore. Currently, the government holds 84.5% of NTPC and plans to reduce its holding to 75% which will also help the company in complying with the minimum public shareholding norms.

NTPC is engaged in the generation and sale of bulk power to state power boards.  The company has 16 coal -fired projects and seven gas-fueled plants, along with seven power plants which it operates as joint ventures. Currently, the company has an installed capacity of generating 39674 MW and plans to add another 16000 MW of capacity in the near future. It aims to increase its installed capacity by up to 128,000 MW by 2032. NTPC went public in 2004. Thereafter in 2009, the government came up with a follow-on public offer to further dilute its stake. The market capitalisation of NTPC currently stands at a little above Rs 126,000 crore.

The considerable slippage from the capacity addition target set for the 11th five year plan has already been discounted by the market and the shares of NTPC are being offered under an OFS near to their historic lows that were seen during the 2008 crisis. Further, NTPC is expected to add a major part of planned capacity addition for the 12th five year plan i.e. 14000 MW by FY2015. It is expected to complete the equipment order tending by Q4FY13 which is a major positive for the stock in the near future. Further, this capacity addition will definitely be expected to drive its generation growth leading to improved earnings growth.

NTPC has the safest business model in the domestic power industry as the company is able to pass to its customers the entire fuel cost. It earned almost a 13% return on capital employed as of FY12. This is outstanding considering the fact that currently other power companies earn either lesser than 10% or negative in terms of profitability. However, for the last couple of years, the company is struggling with coal supply to its power plants. But, there are positive signs on this front as Coal India and the government has allocated coal blocks to NTPC. Further, NTPC is expected to import the coal comfortably considering this year's import figures.

For the last one year the stock is underperforming the market and is currently available at its historical low seen in 2008. Further, the government is expected to offer NTPC's equity share at Rs 145, which will be at almost a 5% discount to today's closing. Considering the low risk business model and robust capacity addition coupled with attractive valuation and the higher profitability in the power industry, we recommend our readers to subscribe to this OFS.