NTPC Green Energy's Rs 10,000 crore IPO likely to unlock value for parent

The news that NTPC Green Energy (NGEL), a wholly-owned subsidiary of NTPC, has clearance from the Securities and Exchange Board of India (Sebi) to raise Rs 10,000 crore via an initial public offering (IPO), was a trigger for the NTPC stock.

 

The stock gained 2 per cent in trade on Tuesday.

 

The IPO could be in November itself as NGEL had filed its draft red herring prospectus (DRHP) in mid-September 2024.

 

NGEL’s IPO will be for fresh issue of shares.

 

NTPC is targeting 60 Gw of renewable energy (RE) capacity by FY32 through NGEL. 

 

NGEL has an operational capacity of 3.2 Gw, 12Gw of contracted under-construction RE projects and a development pipeline of 11 Gw. NGEL will commission 3 Gw, 5 Gw, and 8 Gw capacities in FY25, FY26 and FY27, respectively.

 

NGEL is looking to set up utility-scale RE projects, and tie up with corporates for captive RE requirements.

 

The return ratios for captive projects may be higher than utility-scale projects.

 

ICICI Securities estimates revenue of Rs 11,700 crore and operating profit of Rs 9,500-10,000 crore for the RE portfolio.

 

In a sum-of-the-parts analysis, a brokerage assessed NGEL’s valuation contribution at Rs 91 per NTPC share. The IPO should boost that.  

 

The RE portfolio includes solar and wind assets across multiple locations.

 

As of June 30, 2024, NGEL had 15 buyers across 37 solar projects and nine wind projects. It is constructing 31 RE projects in seven states consisting of 11,771 Mw, which are contracted and awarded. It also had 2,925 Mw operating across 14 solar projects and two wind projects.

 

Revenue from operations has grown at an annual rate of 46.8 per cent from Rs 910 crore in FY22 to Rs 1,962 crore in FY24. 

 

Net profit grew at a compound annual growth rate (CAGR) of 90.75 per cent from Rs 94.7 crore in FY22 (on a special purpose carved-out basis) to Rs 344.7 crore in FY24 (on a restated basis).

 

The IPO would unlock value for NTPC.

 

The public sector undertaking (PSU) had a capex of Rs 17,400 crore for H1FY25 and total consolidated capex target for FY25, including NGEL, is Rs 27,900 crore.

 

While NTPC reported weak performance in Q2FY25, this may be attributed to seasonal factors and a one-off adjustment.

 

Standalone revenue for NTPC was at Rs 40,300 crore in Q2FY25, down 1 per cent year-on-year (Y-o-Y) due to a decline in the average coal price.

 

Operating profit was Rs 9,670 crore (down 8 per cent Y-o-Y) due to a rise in other operating expenditure (Rs 5,500 crore versus Rs 3,400 crore in Q2FY24). Adjusted standalone net profit was Rs 4,200 crore (up 29 per cent Y-o-Y). There was a one-off adjustment of Rs 600 crore relating to previous year’s sales.

 

Guidance implies that H2FY25 adjusted net profit will be better than H1FY25, given better seasonality and new projects leading to higher regulated equity.

 

Standalone regulated equity for NTPC's power and mining businesses grew 7.67 per cent Y-o-Y to Rs 89,400 crore.

 

The gross power generation was at 88 billion units (BUs), lower than 90 BUs in Q2FY24.

Plant availability for coal plants was down to 85 per cent in Q2FY25 from 90 per cent a year ago.

 

Average tariff was Rs 4.67/unit in H1FY25 versus Rs 4.61 in H1FY24. Coal plant load factor (PLF) was 72 per cent in Q2FY25, down 5 per cent Y-o-Y.

 

PLF for hydro improved to 97 per cent (Q2FY24: 93 per cent) and dropped to 7 per cent for gas plants from 18.25 per cent Y-o-Y.

 

Coal production from captive mines rose 62 per cent Y-o-Y. The consolidated installed capacity is over 76 Gw.