NTPC Green IPO: Subscribe for the long-term, says SBI Sec

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NTPC Green Energy Ltd (NGEL), a wholly owned subsidiary of NTPC Ltd, is set to launch its initial public offering (IPO) on November 19, with the issue closing on November 22. The company is seeking to raise ₹10,000 crore through a fresh issue of shares priced between ₹102 and ₹108 per share.

NGEL, India’s largest renewable energy public sector enterprise excluding hydropower, operates a portfolio of solar and wind power projects with an operational capacity of around 3.3 GW (Solar – 3.2 GW and Wind – 0.1 GW) and projects awarded and contracted add up to 13.6 GW as of September 2024, with a target to reach 60 GW of non-fossil capacity by FY32.

The proceeds from the IPO will primarily be used to repay and prepay borrowings of NTPC Renewable Energy Ltd, a wholly owned subsidiary. The remaining funds will be directed towards general corporate purposes, subject to regulatory limits. Post-issue, public shareholding will range between 11% and 11.6% depending on the final offer price.

SBI Securities’ observations

NGEL benefits significantly from its parent company’s scale and market presence. NTPC Ltd, a ‘Maharatna’ enterprise, accounts for nearly 24% of India’s power generation and is targeting a 45-50% non-fossil-based capacity in its portfolio by 2032. NGEL plans to leverage this backing to scale operations and maintain access to low-cost capital.

The company’s geographic diversification, spanning six states, mitigates risks tied to localized disruptions. Its long-term power purchase agreements (PPAs), averaging 25 years, offer revenue visibility and operational stability. However, its concentration in Rajasthan, which houses over 62% of its operational capacity, could pose geographic risks.

Financials and valuation

At the upper price band, NGEL’s FY24 EV/EBITDA multiple is 53.4x, with expected declines to 35.3x in FY25 and 18.3x in FY26 as operational capacity scales up to 6 GW by FY25. Revenue, EBITDA, and PAT are projected to grow at a compound annual growth rate of 79%, 117%, and 124% respectively between FY24 and FY27.

Risks

The company’s growth trajectory relies on competitive project execution, which could be hampered by cost overruns or delays. Dependence on State utilities for 98% of revenue also raises concerns about payment delays. Volatility in raw material costs and the lack of long-term supply agreements further add to the risk profile.

Outlook

SBI Securities recommends subscribing to the IPO at the upper price band, emphasising long-term growth prospects aligned with India’s renewable energy goals. Investors should weigh potential returns against the inherent risks in the renewable energy sector.

(This article was generated using AI and reviewed by a journalist)