NTPC: A 5-Bagger in 4 Years: Is the Growth Story Over?

It is difficult to go through the list of top gainers on the Nifty or Sensex these days and not find the name NTPC in it.

The PSU power sector behemoth is having a dream run on the bourses of late.

In fact, the stock is easily one of the top gainers in the benchmark index ever since the Covid lows.

To put things in perspective, as compared to the 3.2x returns given by the Sensex between March 2020 and now, NTPC's returns have been much better at 5.2x.

That's right, a PSU from the so-called boring sector like power, has done way better than the benchmark index in the current bull run.

Interestingly, the stock has outperformed investor favourites like Hindustan Unilever, Nestle and even Asian Paints.

Thus, this decade so far has certainly belonged to NTPC as compared to the quality blue chips we just named.

It was not always like this though.

NTPC might be an outperformer this decade, it was a severe underperformer in the previous one. I am talking about the period from 2011 to 2020.

You'd be surprised to know that between Dec 2010 and Dec 2020, NTPC actually gave negative returns. That's correct.

An investor investing in NTPC back in 2010, would have earned a negative 40% return even after holding the stock for 10 long years.

In contrast, the same investor would have multiplied his money 10x, 8x and 5x by investing in Asian Paints, Hindustan Unilever and Nestle respectively.

Therefore, while NTPC is winning all the accolades in this decade so far, it was one of the biggest disappointments in the previous decade.

A key reason why NTPC underperformed in the previous decade is its poor financial performance.

NTPC's net profits crawled at a mere 3% CAGR between March 2010 and March 2020, thus leading to most investors staying away from the stock.

A 3% CAGR is even lower than the rate of inflation and no one in his right mind would want to invest in such a low growth stock.

However, things seemed to have changed for the better in this decade.

In a span of just 4 years i.e. between March 2020 and March 2024, the company's bottomline has nearly doubled from Rs 120 bn to close to Rs 215 bn.

Therefore, the strong growth in profits - especially after a poor decade - coupled with a low valuation multiple, has been instrumental in NTPC turning into a 5-bagger in the last 4.5 years.

Talking of valuations, the company's price to book value had fallen to as low as 0.7x during the pandemic crash. Now, power generation companies like NTPC are asset intensive in nature and hence, can be valued based on the price to book method.

You see, between 2005 and 2020, NTPC had commanded an average price to book value multiple of close to 2x. This means that investors were willing to pay Rs 2 for every Rs 1 of the book value on the company's balance sheet.

As I just said, this ratio had crashed to just 0.7x in the Covid crash. Well, the number currently stands at 2.5x, signifying a huge change in sentiments.

If investors were highly bearish on the stock back then, they now seem to be quite bullish about NTPC's medium term prospects.

However, can the price to book value multiple increase further from here? After all, if stocks like Asian Paints and Hindustan Unilever can command a price to book value of 15x to 20x and a PE ratio of 65x to 70x, why can't NTPC do the same?

Well, this is because the business models of NTPC and companies like Asian Paints and HUL, are as different as chalk and cheese.

For e.g. NTPC with its huge boilers and turbines, has managed to generate only 40 paise of sales for every Rs 1 in asset that it has deployed. Asian Paints on the other hand generates 4 times as much i.e. Rs 1.6 of sales for every Rs 1 in asset.

It is this huge difference in productivity of asset that has translated into companies like Asian Paints and HUL being much more capital efficient than NTPC.

The 10-year average ROE of NTPC stands at 12% versus Asian Paints whose ROE has averaged an impressive 28%.

Think of it as two FD accounts in bank where while the first one pays 12% interest, the second one pays a much higher interest of 28%.

The significant difference in ROE is a prime reason why NTPC may never be able to command the kind of valuations that Asian Paints and HUL do.

Thus, there is a slim chance that the price to book value of NTPC can increase substantially from the current levels. Of course, anything can happen in a bull market but if you think logically, a significant expansion in valuation multiples for NTPC looks unlikely.

What about book value though? Can the book value of NTPC go up significantly from the current levels and hence, take the stock price still higher?

Well, if you read the newspapers and the company's own documents, you are likely to come away impressed with the sheer breadth and the magnitude of the company's expansion plans.

NTPC is on a mission to meet a significant chunk of the country's growing power needs and do it in a balanced and a systematic manner.

It has plans lined up not only for thermal as well as renewable capacity expansion but also in the nuclear power space, Besides, forward integration into transport fuel and chemicals as well as reducing carbon footprint and controlling pollution is also on the anvil.

There are numbers doing the rounds that the company could easily spend Rs 400 bn every year for the next 10 years to put its ambitious growth plans into action.

Thus, growth should not be a problem for the company, at least in the medium term.

However, the question is how much of this growth is already reflecting in the company's share price. Well, the stock is certainly trading at a premium valuation when compared with its historical averages.

However, the premium isn't very high in my opinion. Thus, the stock may find favour with investors who are of the growth kind or perhaps even the growth at a reasonable price kind.

However, it could be out of bounds for deep value or value investors who don't like to pay for future growth and essentially want it for free.

You need to decide based on which investor category you fall into. One thing cannot be denied though. We love this new aggressive version of NTPC and we wish the company all the best for its future plans.

Happy Investing.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter
What are the 3 main types of stock? Research Private Limited (formerly What are the 3 main types of stock? Agora Research Private Limited) (Research Analyst)