NTPC Green Energy Ltd – IPO Note

Objects of the offer

• To invest in the company’s wholly owned subsidiary NTPC Renewable Energy Limited (NREL) for repayment/ prepayment, in full or in part of certain outstanding borrowings availed by NREL; and

• General corporate purposes.

Investment Rationale

• Strong parentage – The company benefits from the robust backing of NTPC Limited, a major integrated energy player with an electricity generation capacity of 76 GW (as of 30 September 2024), spanning coal, hydro, gas, and renewable energy operations across India. NTPC Ltd brings extensive expertise in executing large-scale projects, strong long-term relationships with offtakers and suppliers, and significant financial strength. NGEL is poised to play a crucial role in NTPC’s strategy to expand its non-fossil-based capacity to 45-50% of its portfolio, with a target of 60 GW in renewable energy capacity by 2032. Additionally, NGEL further derives benefits from NTPC in terms of its experience in efficient operations of power stations, superior execution capabilities, land banks across India for power projects, experience of dealing with State DISCOMs etc. NGEL also holds the highest credit rating from CRISIL, reflecting the strong credit profile of its parent, NTPC Limited.

• Established position – The company ranks among the top 10 renewable energy players in India by operational capacity. It boasts a substantial portfolio of utility-scale solar and wind energy projects, serving both public sector undertakings (PSUs) and Indian corporates. As of 30 September 2024, the portfolio totaled 16,896 MW, including 3,320 MW from operating projects and 13,576 MW from contracted and awarded projects. The pipeline capacity stood at 9,175 MW, bringing the combined total of the portfolio and pipeline to 26,071 MW. The company has 17 offtakers across 41 solar projects and 11 wind projects, all of which are government agencies and public utilities, with long-term Power Purchase Agreements (PPAs) that have an average term of 25 years.

• Financial performance – The company reported revenue of Rs.1,963 crore in FY24 against Rs.170 crore in FY23, a growth of 1057%. The EBITDA of the company in FY24 is at Rs.1,747 crore, a 1054% YoY growth compared to the Rs.151 crore of FY23. The net profit increased by 101% compared to Rs.345 crore compared to Rs.171 crore of FY22.

Key risks

• Raw material price volatility – Any disruption to the timely and adequate supply, or volatility in the prices of required materials, components and equipment may adversely impact on the business, results of operations and financial condition.

• Regional concentration – A major portion of the company’s renewable energy projects are concentrated in Rajasthan (62% as of 30 September 2024). Any significant social, political, economic or seasonal disruption, natural calamities or civil disruptions in Rajasthan could have an adverse effect on the business.

Outlook

We believe that the backing of the NTPC Group will enable NGEL to expand its renewable energy portfolio and establish itself as a leading green power company in India. The company’s strategy to grow its project pipeline through careful bidding and strategic partnerships with PSUs and private corporates, along with its focus on emerging energy solutions such as green hydrogen, green chemicals, and energy storage, positions it for significant growth. Additionally, the opportunity to contribute to the nation’s sustainability goals further enhances the company’s growth potential. According to RHP, Adani Green Energy Limited and ReNew Energy Global PLC are the listed competitors for NGEL. The peers are trading at an average P/E of 153.44x with the highest P/E of 259.83x and the lowest being 47.05x. At the higher price band, the listing market cap of NGEL will be around ~Rs.91,000 crore and the company is demanding a P/E multiple of 263.98x based on post issue diluted FY24 EPS of Rs.0.41. Based on the above views, we believe the issue is aggressively priced (read as overvalued) and we provide a ‘Neutral’ rating for this IPO for a medium to long-term Holding.

Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.

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