NTPC Green Energy, a wholly-owned subsidiary NTPC Ltd, has recently filed draft papers for Rs 10,000 crore initial public offering (IPO) with markets regulator SEBI. NTPC's re-rating in the last two years is attributable to a large extent to this burgeoning renewable energy (RE) business, which is on a path to launch IPO in the first half FY2025, MOFSL said in a note.
The domestic brokerage values the RE business at Rs 88,000 crore but believes the upside for NTPC could largely be priced in. It believes the holding company discount after the NTPC Green Energy listing is hard to predict and investors may prefer investing in NTPC Green Energy over NTPC for RE exposure.
"Lastly, although we are cautiously optimistic on thermal, NTPC, excluding NGEL, is trading at FY27E PB of 1.6 times, which we view as reasonable (and not inexpensive). NTPC’s FY27E dividend yield at 2.6 per cent compares poorly with Power Grid's 3.5 per cent, the brokerage said while suggesting a target of Rs 450, which suggests a 10 per cent upside over the prevailing price.
Earlier this week, ICICI Securities maintained its 'Buy' rating on NTPC with a target price of Rs 495. It said teh country is witnessing strong power demand growth and expects the base and peak power demand to grow at 6 per cent each over the next couple of years. As the power demand grows at 6 per cent per year, India may need to add more thermal capacity to meet medium-term demand, before storage solutions become economically viable, it noted.
On NTPC Green Energy, it said the company is not only looking to set up utility-scale RE projects, but also tie up with corporates and PSUs for their captive RE requirements, ICICI Securities said.
"We expect the return ratios for captive to be higher than utility-scale projects. NTPC targets 60GW of RE capacity by FY32. We estimate revenue of Rs 11,700 crore and Ebitda of Rs 9,500–10,000 crore for its portfolio," ICICI Securities said.
NTPC Green Energy has an operational capacity of 3.2GW, a contracted under-construction renewable energy (RE) capacity of 12GW and a future development pipeline of 11 GW.