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The Subscription of NTPC Green Energy IPO ( initial public offering) has begun on November 19, 2024, and will end on November 22, 2024. In making an investment decision, the investors are presented with the summary of strengths, weaknesses, and opportunities for growth of the renewable power producer that will assist them make proper investment decision.

A brief synopsis of the NTPC Green Energy IPO

Quality: As per the reports, during both FY23 and FY24 the two year average ROE and ROCE reported were 4.9% and 4.5% respectively.

Growth: NTPC Green Energy operationalized in the year corresponding to FY23 and FY24 as approximately 1,056% and 101% revenue and net profit respectively.

Valuation: The stock is assigned a P/E and P/B multiple of 290.5 and 5 times respectively.

Overview: NTPC Green Energy Limited, a company under NTPC Limited, would primarily gain from the invoke national energy target for renewable energy sources policies including aspirations of 50% non-fossil fuel capacity by 2030 and net zero emissions agenda by 2070. The installed capacity of renewable energy sources as on Sep 2024 accounts for 45 % and NTPC Green Energy is expected to contribute to this shift significantly. Further growth is expected with better solar wind technology, increasing clean energy demand, and government patrons. However, issues pertaining to high debts of the company and high capital expenses of the industry still remain problematic.

About NTPC Green Energy

NTPC Green Energy, which the parent company NTPC fully owns, is one of the leading players in the renewable energy business in India. The firm was set up in April 2022 and remains the largest PSU in renewable energy in terms of operating capacity and generation of power as of (30 September 2024). The firm has a wind and solar power portfolio of 3,320 MW, with 17 solar plants and two wind farms distributed over six states. In the financial year 2024, over 95 percent of the revenues earned by NTPC Green came from the sale of renewable energy. Besides solar and wind, the company is still making strides in green hydrogen, green chemicals and battery storage technologies with flagship projects like a green hydrogen hub in Pudimadaka.

Strengths of NTPC Green:

Strong backing and expertise: NTPC Green is a 100% subsidiary of NTPC Limited, which as of September 30, 2024 contributed around 17% of total installed capacity in India and 24% of total power generation in the country. The company is in a position to benefit from the size of its parent company in terms of negotiating to bring down the EPC (engineering, procuring and construction) costs and prices of various equipment, and materials, as well as project mammoths of solar and wind energy from various local and international OEMs (original energy manufacturers).

Stable revenue: NTPC Green has proved to be the preferred partner for PSUs driving renewable energy agendas aided by long-term power purchasing contracts (PPAs) which are executed with the NTPC for a period of 25 years. Such contracts always have a 25 year duration, thereby assuring NTPC Green with steady income. Also, since all the nine off-takers are government organizations, NTPC Green Energy enjoys low credit risk.

Positive growth prospects: With a well-diversified portfolio of 16,896 MW, including 3,320 MW of operating capacity, 13,576 MW of contracted projects and an additional 9,175 MW in the pipeline, NTPC Green Energy demonstrates a robust growth trajectory. Its ability to secure future development opportunities through MOUs and joint ventures with PSUs and private companies also ensures sustained expansion.

Weaknesses of NTPC Green

High trade  receivables and debt: Though NTPC Green’s financials are relatively stable, it has high trade receivables, resulting in negative free cash flows. This is attributed to the fact that the company’s clientele comprises government discoms. Further, NTPC Green reported a debt of Rs 18,045 crore (as of September 2024), significantly affecting its bottom line.

IPO details

Post IPO

Financial history

Risk Report

General company and business risk

1. Are the earnings before tax of NTPC Green more than 50 crore Rs for the last twelve months?

Yes. For the twelve months period ending June 2024, the company booked profit before tax at Rs 454 crore.

• Will NTPC Green be able to grow its business?

Yes. The company will scale up its business due to government policy measures on renewable energy and increasing demand for power.

• Do businesses have any identifiable brands that help retain customers?

Yes. NTPC Green is a brand Canadians can trust because they are associated with NTPC, the parent company that is government owned. It also signed long term power purchase agreements with other governmental discoms, each averaged to be 25 years.

•  Is there any kind of credible moat available for the company?

Yes, it operates in an industry where there are problems of thick regulations and land and capital are of high prevalence.

Valuations

1.  Does the stock provide an operating earnings yield on its enterprise value above 8%?

No. NTPC Green provides an operating earnings yield of 1% on its enterprise value.

•  Is the price earnings ratio of the stock lower than its peers’ median level?

No. It is currently valued at a P/E multiple of 290.5 times against the median of 208.9 times for its publicly listed counterparts.

•  Is the stock’s price to book ratio lower in value compared to that of the peers’ average level?

Yes. The stock is trading at a price level of over 5 times P/B ratio as opposed to the 22.3 times picture of its listed competitors.

Stockbox Recommendation