MUMBAI: NPTC, the largest power utility company in India, is certainly finding many buyers in the stock market. Since June 30, which has seen the index fall by nearly 25 per cent, NTPC has managed to stand tall with a mere 3 per cent loss. Capital goods manufacturer BHEL is also virtually unchanged.
A combination of low business risks, strong cash positions and conservative management (public sector) seem to indicate that these are the new defensive stocks in the Indian market. Meanwhile, sectors such as pharmaceutical, traditionally seen as defensive, have disappointed investors. Most have seen large foreign exchange linked losses during the September quarter while some majors like Ranbaxy Laboratories and Dr Reddy's Laboratories have recorded a net loss. Most drug companies have a large presence overseas following takeovers in the recent years. Effectively, these firms are exposed to foreign exchange risks, market risk and regulatory risks. In contrast, NTPC seems to have a very limited risk profile. The company has an assured return on equity if it fulfils some norms. As long as NTPC keeps adding fresh power generation capacity, it will see an increase in profits. Changes in cost of fuel don't affect the company as they are completely passed through. The company has added 1,500-2,000 megawatts of fresh capacity annually over the past few years. Moreover, India faces a power shortage of close to 12 per cent, so there is enough demand for power. NTPC is currently the only firm with the resources to consistently add new power generation capacity. In fact, NTPC accounts for over half of the order backlog of BHEL, which manufactures power generation equipment. BHEL's order backlog of over Rs 100,000 crore covers more than three years of sales. NTPC and other state-owned utilities are the primary clients. Half of the orders of the company are covered by price variation clauses, which means risk from raw material price fluctuations is mitigated to some extent. Like NTPC, BHEL also has a large cash reserve of Rs 8,000 crore. The company is also virtually debt free. While public sector companies usually lag in a bull-run as they are not aggressive in pursuing new opportunities, such conservatism looks like a virtue now. On Wednesday, while Nifty was down 4.68 per cent, NTPC and BHEL lost about 2.5 per cent each, closing the day at Rs 147.5 and Rs 1,378 respectively. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
