See In A New Light

The recent weakness in the stock is a good buying opportunity for long-term investors, given the company’s strong fundamentals

- Vivek Ananth

Power generation in India has been falling with shrinking industrial production.

This has prompted some investors to wonder if it makes sense to own stocks of power generating companies. As a result, stocks such as NTPC have taken a pounding in the past six months. The stock has fallen nearly 20 per cent since BusinessLine’s last ‘buy’ call in May 2019.

But the fall in the stock price presents a good buying opportunity for investors with a long-term perspective.

The current dividend yield is a healthy 4.7 per cent. Besides, the stock is trading at a 12-month trailing price-to-earnings multiple of about eight times, below its three-year average multiple of about 11.5 times.

The company’s fundamentals and its long-term business prospects seem sound.

Also, many of its under-construction projects are expected to come on stream in the next few years; this should add to earnings growth.

Several factors have weighed on the NTPC stock over the past few months. One, its electricity generation fell 3.2 per cent y-o-y to 145.3 billion units in the first half of FY20.