NTPC Green Energy: Future powerhouse or overvalued prospect? What should you do?

In this analysis, we take a closer look at NTPC Green Energy Ltd and present you with the exclusive IPO details.

About the Issue  

NTPC Green Energy Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. See the issue details below.

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is important to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Investment in the wholly owned subsidiary, NTPC Renewable Energy Limited (NREL), for repayment/ prepayment, in full or in part of certain outstanding borrowings availed by NREL

2. General corporate purpose.

Promoter holding  

The President of India, acting through the Ministry of Power, Government of India and NTPC Limited are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 100 per cent in the company.

Company profile  

NTPC Green Energy Ltd is a wholly owned subsidiary of NTPC Limited, a ‘Maharatna’ central public sector enterprise. According to a CRISIL report, it stands as the largest renewable energy public sector enterprise (excluding hydro) by operational capacity as of September 30, 2024, and by power generation in Fiscal Year 2024.

The generated renewable power is fed into the grid, providing energy to utility companies or off-takers. For its operational projects, the company has secured long-term power purchase agreements or letters of award with off-takers, including central government agencies like the Solar Energy Corporation of India (SECI) and various state government agencies or public utilities.

Its renewable energy portfolio includes both solar and wind power assets across more than six states, with an operational capacity of 3,220 MW in solar projects and 100 MW in wind projects as of September 30, 2024.

As of September 30, 2024, the company’s portfolio totalled 16,896 MW, with 3,320 MW in operating projects and 13,576 MW in contracted and awarded projects. Including its pipeline capacity, the total portfolio reached 26,071 MW.

Financials 

After posting satisfactory topline and bottom-line figures in FY23, the company reported a sharp growth in FY24 and is likely to continue this robust performance into FY25, based on its first-half results. This impressive growth is primarily driven by an optimistic environment, fuelled by opportunities emerging from India’s renewable energy ambitions and the company’s ongoing expansion plans.

Valuation & Outlook

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 9.89 times, calculated using its Net Asset Value (NAV) of Rs 10.92 as of September 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 5 times, considering its post-IPO NAV.

With the company’s annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio stands at around 260 times. As a result, the issue is priced aggressively.

The industry’s future holds promise, with India setting ambitious goals to reach around 50 per cent of its cumulative electric power capacity from non-fossil fuel sources by 2030 and achieve Net Zero emissions by 2070.

However, contrasting global energy policies—such as Donald Trump’s fossil fuel stance, which diverges from India’s strong commitment to renewable energy—could impact India’s green energy ambitions. Consequently, green energy stocks have already experienced significant selling pressure following the recent U.S. election results.

Backed by its parent, NTPC Ltd, the company shows strong growth potential with its solid financial performance, established capacity, and promising pipeline of future projects.

While the company’s growth outlook is positive, its current valuation appears aggressively high and may deter investor interest, particularly amid weak market conditions and benchmark indices down by over 10 per cent from their peaks. Given these valuation concerns and potential risks, we recommend investors to avoid the IPO.