NTPC Green Energy IPO: NTPC Green Energy, the renewable energy subsidiary of National Thermal Power Corporation (NTPC), a ‘Maharatna’ central public sector enterprise, has submitted its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi), marking the commencement of its initial public offering (IPO) process.
As one of India’s top 10 renewable energy companies by operational capacity (as of June 2024), NTPC Green Energy IPO is poised to be the largest PSU share sale since Life Insurance Corporation’s IPO in May 2022. This move is expected to boost investor sentiment, capitalising on India’s thriving primary markets, which have seen 61 companies go public this year.
As investors await further details, here is a comprehensive analysis of the strengths, weaknesses, opportunities, and threats of the NTPC Green Energy, as described in the DRHP papers.
Key strengths outlined in the DRHP
Legacy of NTPC Group
NTPC Green Energy is promoted by its parent company, NTPC, one of the largest power companies in India. The company benefits from the support, vision, resources, and experience of the NTPC Group, which is looking to expand its non-fossil-based capacity to 45-50 per cent of its portfolio, including 60 GW of renewable energy capacity by 2032.
Moreover, NTPC Limited has the highest credit rating from leading Indian rating agencies, with ratings equivalent to India’s sovereign ratings from foreign rating agencies. NTPC’s Green arm, NGEL, and its subsidiary, NREL, also enjoy the highest credit rating from leading Indian rating agencies.
Strong Fundamental Factors
The company stated in the DRHP that it is one of the frontrunners in the development of Round-the-Clock (RTC) renewable energy projects in India. It is developing 2.7 GW of RTC RE capacities, including one of the world’s largest RTC RE projects of 1.3 GW. The company’s revenues are primarily driven by energy sales, which account for 99 per cent of its total operating revenues.
“Among its peers, the company has earned higher EBITDA margins and PAT margins in the last two fiscal years. The company has a debt-to-equity ratio of 1.97 for Fiscal 2024, which indicates moderate leverage. Further, it is lower than its peers, indicating higher funding through equity,” NTPC Green Energy said in the DRHP.
Key risks, threats as per the DRHP
Reliance on Offtakers
NTPC Green Energy stated that many new projects are under construction, and the company expects to remain reliant on its top 9 offtakers for a significant portion of its revenue through Fiscal 2025. “If any of these offtakers become unable or unwilling to fulfill their contractual obligations under the relevant PPAs, or terminate the agreements, our assets, liabilities, business, and financial condition could be materially affected,” NTPC Green Energy mentioned in the DRHP.
Dependency on third-party for materials and equipment supply
The company said its business and profitability are heavily dependent on the availability and cost of solar modules, wind turbines, and other components, for which it relies on third-party suppliers. “Any disruption in supply, or volatility in prices, may adversely impact our business, results of operations, and financial condition,” said NTPC Green Energy in the DRHP.
Concentration of renewable energy projects in Rajasthan
NTPC Green Energy’s operating renewable energy projects are concentrated in Rajasthan. The company stated that any significant social, political, economic, or seasonal disruption in Rajasthan could adversely affect its business, financial condition, and results of operations.
Additionally, the company faces competition from both traditional and renewable energy companies, and failure to respond to market changes could impact its financial performance.
Opportunity
India’s energy demand has grown to 880 Mtoe (IEA, 2021) from 441 Mtoe in 2000. The Government of India has made remarkable progress in providing access to electricity and clean cooking, while integrating a high share of renewable energy sources into the grid. According to the World Energy Outlook 2021 by the IEA, India’s share in global primary energy consumption was 6.1 per cent in 2020, likely to increase to 9.8 per cent by 2050. NTPC Green Energy, being a leading market player, is expected to benefit from this.
Other Key details of the proposed NTPC Green Energy IPO
NTPC Green Energy aims to raise Rs 10,000 crore through its initial public offering (IPO), comprising a fresh issue of equity shares, as outlined in its DRHP. The company will determine the floor price, price band, and issue price in consultation with the Book Running Lead Managers based on market demand.
KFin Technologies is the registrar for the public issue of NTPC Green Energy IPO, while IDBI Capital Markets & Securities, HDFC Bank, IIFL Securities, and Nuvama Wealth Management are the book-running lead managers.
The equity shares of NTPC Green Energy, with a face value of Rs 10 each, are proposed to be listed on BSE and NSE.
NTPC Green Energy financials
NTPC Green Energy’s revenue from operations for the quarter ended June 30, 2024, stood at Rs 578.44 crore. The company’s revenue surged to Rs 1,962.60 crore in FY24, compared to Rs 169.69 crore in FY23, as per the DRHP.
The company’s total expenses for Q1FY25 were reported at Rs 423.97 crore. In FY24, total expenses were Rs 1,549.45 crore, up from Rs 118.08 crore in FY23. Net profit attributable to the parent company owners stood at Rs 138.61 crore in Q1FY25, compared to Rs 344.71 crore in FY24 and Rs 171.21 crore in FY23.
NTPC Green Energy IPO objective
NTPC Green Energy plans to utilise Rs 7,500 crore from the net proceeds to fund investments in its subsidiary, NTPC Renewable Energy (NREL), for repayment/prepayment of certain borrowings. The remaining proceeds will be used for general corporate purposes.
About NTPC Green Energy
NTPC Green Energy is a wholly owned subsidiary of NTPC. According to CRISIL’s September 2024 report, the company is the largest renewable energy public sector enterprise (excluding hydro) in terms of operating capacity as of June 30, 2024. The company’s portfolio, comprising both solar and wind power assets, spans multiple locations in six states, reducing location-specific generation risks. As of June 30, 2024, NTPC Green Energy’s portfolio consisted of 14,696 MW, including 2,925 MW of operating projects and 11,771 MW of contracted and awarded projects.
