Brokerage firm Kotak Institutional Equities has analyzed the DRHP of NTPC Green Energy Ltd and believes that the listing bound subsidiary of NPTC will chart its individual growth path. The initial reading of the prospectus suggests that earnings for the green business are sub-par, said the brokerage.
NTPC Green reported an Ebitda of Rs 1,740 crore on a gross block of Rs 19,900, implying a cash return on gross capital invested (CRoGCI) of 9.6 per cent that appears low, despite an average tariff of Rs 3.44 per kwh in FY2024, Kotak said. "Tata Power and Renew Power had a CRoGCI of 10.8 per cent each, while Adani Green had a CRoGCI of 14.7 per cent in FY24."
"Our comparison may miss stabilization of assets and part capitalization of under construction assets. Leverage at Rs 12,700 crore was 64 per cent of the gross block of Rs 19 900 crore, but the same seems under-leveraged when one takes into consideration the additional CWIP of Rs 7,100, as of March 2024," said Kotak.
NTPC Green is pursuing incremental opportunities of 11.7 GW that will likely yield an incremental revenue of Rs 7,900 crore, though management has not highlighted the capital cost for the projects. NTPC Green has further plans to add 10.9 GW of capacities, of course its eventual target of having 60 GW of installed capacity in the renewable business by 2032, it said.
NTPC Green had a net worth of Rs 6,200 crore, as of March 2023, supported by the larger balance sheet of NTPC. As a separately listed entity, access to cash flows from NTPC will be constrained and NTPC Green will have to fend for itself through an incremental equity raise.
"We highlight that the proposed raise of Rs 10,000 crore will help fund the equity component of Rs 12,700 crore for a balance capex of Rs 63,500 crore for 11.7 GW of contracted and awarded projects. NTPC on its own will have investment allocation just for the coal business, and accordingly, higher free cash flows for lower growth opportunities," noted Kotak.
However, investors looking for a green and growing portfolio will directly have access to NTPC Green; this may accordingly warrant a lower valuation for NTPC, it said. However, Kotak has maintained its 'sell' rating on NTPC and increased the fair price to Rs 300 apiece from Rs 290 apiece. It sees a 31 per cent down in the NTPC shares.