NTPC Green Energy has officially filed its draft red herring prospectus (DRHP) to launch an initial public offering (IPO) aimed at raising ₹10,000 crore. This IPO will consist entirely of a fresh issue, with no offer-for-sale component included. This move is part of India's broader strategy to enhance its renewable energy sector, with the government targeting an ambitious goal of achieving 500 gigawatts (GW) of renewable energy capacity by 2030.
The IPO aligns with NTPC's commitment to renewable energy and underscores its subsidiary, NTPC Green Energy, as a key player in the country's shift towards sustainable energy sources. ICICI Securities has responded positively to this development, maintaining a 'Buy' rating on NTPC Ltd., with a target price set at ₹495 per share. The brokerage believes that the growth potential of NTPC Green Energy will significantly contribute to the overall performance of NTPC Ltd.
ICICI estimates that NTPC Green Energy could generate revenues of ₹11,700 crore and an EBITDA between ₹9,500 crore and ₹10,000 crore from its renewable energy initiatives. The success of a renewable power company is largely dependent on its ability to efficiently build renewable energy (RE) assets while maintaining lower capital expenditure (capex). Moreover, the company must also focus on recovering its earnings before interest, taxes, depreciation, and amortization (EBITDA) in a timely manner.
A critical aspect highlighted by ICICI Securities is NTPC Green Energy’s locked-in portfolio, which is projected to be commissioned by FY28. This portfolio refers to projects that have been contracted and awarded but are yet to be operational, providing a foundation for future growth. The brokerage considers the capex-to-locked-in-EBITDA ratio an essential metric for evaluating renewable energy companies, with a lower ratio indicating faster recovery of investments. For NTPC Green Energy, a ratio below 7.5 times is viewed favorably.
NTPC Green Energy currently holds the third-largest contracted capacity in India at 15 GW, trailing behind Adani Green’s 27 GW and ReNew Power’s 16 GW. However, its operational capacity is currently at 3.2 GW, generating an EBITDA of ₹1,700 crore. The company has also recently secured an additional 0.4 GW in solar projects, further strengthening its position in the renewable sector.
To achieve its long-term goals, NTPC Green Energy anticipates a capital requirement of approximately ₹60,000 crore for its under-construction projects. The funds raised from the IPO are intended to bolster the company's renewable energy assets. Typically, NTPC follows an 80:20 debt-to-equity ratio for its projects, with the equity portion being supported by this IPO.
The power demand in India is expected to experience significant growth, especially in the aftermath of the pandemic, with ICICI Securities estimating an annual increase of 6% in both base and peak power demand in the coming years. To address this growing demand, additional thermal capacity may be necessary in the medium term, until storage solutions for renewable energy become more economically viable.
NTPC has set an ambitious target of achieving 60 GW of renewable energy capacity by FY32. As of March 2024, NTPC's renewable energy portfolio consists of a locked-in capacity of 20 GW, alongside 3.5 GW currently in operation and an additional 5 GW under construction. Given this robust pipeline and the favorable market conditions, ICICI Securities maintains its 'Buy' recommendation for NTPC, with the target price reflecting a valuation of 18 times FY26 estimated earnings per share (EPS) for NTPC's thermal business and 12 times the enterprise value (EV) to EBITDA for its renewable energy portfolio.
