NTPC shares: Elara ups target price post NTPC Green Energy stock listing; here's why

Elara Securities has upped its target price for NTPC Ltd following the listing of NTPC Green Energy. The brokerage said it analysed the incremental value addition for NTPC and suggested a new target price of Rs 505 for the PSU stock.

Previously, without holding company discount, it had arrived at an option value of Rs 63 per share for NTPC Green Energy, thus arriving at a target price of Rs 497 for NTPC. At the market price of Rs 122 for NTPC Green Energy and factoring in holding company discount of 25 per cent, the option value for the newly listed firm has increased to Rs 71 per share, thus resulting in
a rise target price, Elara Securities said.

At current market price, NTPC Green Energy is trading at an attractive valuation of 15.6 times EV/Ebitda, it said. Kotak Institutional Equities had earlier suggested that NTPC Green's valuations are pricey and had suggested a 'Sell call on NTPC.

NTPC Green manages a portfolio of solar and wind assets in multiple regions, with 4,294 MW of operational capacity and an average PPA tenure of 25 years. It aims to add 16GW of RE within three years to reach 60GW capacity by 2032. The company plans to commission 3GW in FY25, 5GW in FY26, and 8GW in FY27. Strategic MoUs with Rajasthan (25GW) and Maharashtra (10GW) provide a robust pipeline for achieving these goals, Elara Securities said.

"NGEL is advancing into hydrogen and battery storage technologies. It is developing a green hydrogen hub at Pudimadaka, Andhra Pradesh, and is finalising partnerships for electrolyzer production. In battery storage, it plans to install grid-scale facilities to support solar and wind power, while participating in standalone grid-scale storage tenders for grid balancing. Leveraging NTPC’s established reputation, NGEL benefits from strong operational and strategic ties, securing low-cost debt financing at 7 per cent," it said.

In an earlier note, Kotak said NTPC Green trades at pricey valuations—EV/Ebitda of 16 times and 5 times P/B on FY2028, when the current portfolio of projects (17 GW) will fully contribute to earnings, reflecting the 55 per cent CAGR in Ebitda over FY2024-28.

"Valuations are at a premium to the peer set, Renew Power and Adani Green. On the other hand, NTPC (which continues to own 90 per cent of NTPC Green) trades at 1.8 times P/BV and 9.4X EV/Ebitda on FY2026E," Kotak said.

Kotak believes as a separately listed entity, NTPC Green will not be able to get the support of NTPC for the incremental equity requirements, as was the case till now. As a corollary, NTPC’s cash generation will be restricted to lower-growth coal opportunities.

"With a separate listing of NTPC Green, cash flows of NTPC Ltd would likely be restricted to investment in the coal business, while incremental investment opportunities happen to be in NTPC Green," Kotak said while maintaining a 'sell' on NTPC with a revised fair value of Rs 310.