NTPC Green Energy IPO: Key takeaways from DRHP; NTPC share price target & more

ICICI Securities has retained its 'Buy' rating on NTPC Ltd with a target price of Rs 495 after a wholly-owned subsidiary NTPC Green Energy filed draft papers with the markets regulator SEBI for Rs 10,000-crore initial public offering (IPO). 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.

NTPC Green Energy 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.

Valuation multiple
The brokerage said capex to locked-in Ebitda metric is ideal while evaluating a renewable portfolio. Locked in portfolio is defined as projects where the bids have been concluded and the projects are contracted and awarded.

ICICI Securities said the success of a renewable power company is determined primarily by its ability to build RE assets at lower capex, thus, recovering Ebitda faster. "In our opinion, a ratio less than 7.5 times is good. A company can be valued higher in the instance of a better portfolio and pipeline in terms of agreements, large land resources and cost advantages," ICICI Securities said.

The domestic brokerage said NTPC Green Energy's locked-in portfolio is likely to be commissioned by FY28. It estimates the Ebitda of locked-in portfolio at Rs 9,500-10,000 crore. NGEL has also entered into agreements and MoU with corporates to set up RE capacity for their internal consumption.

3rd largest contracted capacity
NTPC Green Energy has the third-largest contracted capacity of 15GW, after Adani Green (27GW) and Renew Power (16GW). Its portfolio consists primarily of utility-scale projects. However, NTPC Green Energy's operational portfolio is only 3.2GW with Ebitda of Rs 1,700 crore. Post filing of the DRHP, NTPC Green Energy has won 0.4GW of solar project.

"We expect a capital requirement of Rs 60,000 crore to fund under construction projects. NGEL is planning to raise Rs 10,000 crore via its initial public offering (IPO). NTPC preferably funds its project in debt:equity ratio of 80:20. We expect that the company to utilise the raised funds in funding its RE assets," ICICI Securities said.

NTPC stock valuation
India is witnessing strong power demand growth, post-covid and ICICI Securities expects the base and peak power demand may 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 said.

"NTPC has demonstrated its ability to execute RE capacities in a timely manner and has set a target of 60GW by 2032. As of March 2024, it has locked-in capacity of 20GW, operational capacity of 3.5GW, and under construction capacity of another 5GW, upcoming capacities would start contributing significantly to profitability in coming
years," it said.

The brokerage suggested a 'BUY' on NTPC with an unchanged target price of Rs 495, valuing its thermal business at 18 times FY26E EPS of Rs 438 per share and RE portfolio at 12 times FY26E EV/Ebitda.