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| 3/7/2013 9:00 PM Thursday

NTPC

I have 5000 shares of NTPC, purchased at Rs 203 per share. Should I continue to hold them? Please advise.
Dr R K Rao, Secundrabad, Andhra Pradesh

HOLD

BSE/NSE Code 532555/NTPC
Face Value Rs 10
CMP Rs 151
52-Week High/Low Rs 185/Rs 137
Current Profit/(Loss) 25.62 per cent

One major problem with retail investors is that they tend to take a long time in cutting their losses. Look at the previous case. It is very similar to yours. NPTC has not traded above Rs 185 for the past one year now. Even that price of Rs 185 is way below your purchase price. Why have you waited for so long to seek advice on what to do with the shares you hold? It is very important that investors realise the criticality of cutting losses at an appropriate stage so that there is minimal wealth erosion. Also, it helps in diverting funds to other profitable areas. Now let’s look at whether your case calls for the application of the above logic or not. 

NTPC engages in the generation, distribution, and sale of bulk power to state power utilities in India. It generates power from coal, gas, hydro, and liquid fuel sources. The company also undertakes consultancy and turnkey project contracts that comprise of engineering, project management, construction management, and operation and maintenance of power plants. In addition, it engages in oil and gas exploration, and coal mining activities. The company has approximately 39174 megawatts of installed power generation capacity. 

On the financial front, NTPC has reported a healthy net profit of Rs 2596 crore beating market expectations. This was 21.89 per cent more from what it had reported during the same quarter last year. Its Net sales came in at Rs 15332 crore, up by 2.9 per cent on a YoY basis. The company has reported a 31.38 per cent growth in its EBITDA, which stood at Rs 4028 crore and its EBITDA margin increased by a whopping 553 basis points to 25.53 per cent during the quarter. On the valuation front, the stock trades at a TTM PE of 11.41x and its dividend yield stands at a healthy 2.72 per cent. So, as you can see, the fundamentals of the company are in place. The problem is actually a macro issue. The power sector has been going through some rough time. There were expectations of the Budget coming up with some respite, but that hasn’t happened either. There are, however, steps being taken to bring about an improvement in the conditions of the sector. It would be better in your case to wait for a while and look for those improvements to begin reflecting in the stock price rather than be in a hurry to cut your losses now. Hence, we suggest you to hold the stock from a longer-term perspective to garner better returns going forward.

 

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