Will NTPC Green benefit from green energy revolution? NTPC Green IPO Fundamental Analysis

Summary

This video provides a fundamental analysis of the upcoming IPO of NTPC Green Energy, a subsidiary of NTPC Limited, one of India's largest power producers. It covers NTPC Green’s business model, strengths, growth drivers, financial performance, and potential risks. The video highlights its solar and wind power capacities, government initiatives, and future plans in renewable energy and battery storage. Additionally, the presenter shares a strategy to improve IPO allotment chances by purchasing NTPC Limited shares. Key risks like supply chain issues and competition are also discussed.

Takeaways

• 🌞 NTPC Green Energy, a subsidiary of NTPC Limited, is one of India's largest renewable power producers, primarily focusing on solar and wind energy.
• 📊 The company has an operating capacity of 2.8 GW as of June 2024, with an impressive pipeline of 25 GW in projects under operation, contracts, and development.
• 💰 NTPC Green Energy is expected to launch an IPO in November 2024, targeting ₹10,000 crore. The IPO will provide a complete price issue, with more details on valuation to come.
• 📈 The company benefits from NTPC's AAA credit rating, allowing it to secure funds at lower interest rates, a significant advantage in this capital-intensive industry.
• 🛠️ NTPC Green outsources its Engineering, Procurement, and Construction (EPC) work while focusing on renewable power production.
• ⚡ India's per capita energy consumption is expected to grow by 5-7% annually between FY23 to FY29, driven by government initiatives, electrification efforts, and rising demand from consumer durables and electric vehicles.
• 🌍 Renewable energy is a key growth area, with India aiming for 50% of its electricity from non-fossil fuel sources by 2030, making NTPC Green well-positioned for the future.
• 💸 NTPC Green reported an EBITDA margin of 90% in FY24, showcasing strong financial performance despite the capital-intensive nature of the business.
• 🚨 Key risks include concentration risk, where 98% of the company’s revenue comes from nine top customers, and reliance on third-party solar and wind component suppliers.
• 💡 Investors can increase their chances of getting an IPO allotment by buying at least one share of NTPC Limited to qualify for a special shareholder quota.

Q & A

What is NTPC Green Energy, and what role does it play in India's power sector?

NTPC Green Energy is a subsidiary of NTPC Limited, one of India's largest power producers. It focuses on renewable energy, primarily solar power, with a smaller portion of wind power. The company fits into the power production segment of the solar value chain, outsourcing EPC work for setting up solar plants.

When is the expected date of the NTPC Green Energy IPO, and what is its estimated size?

The exact date for the NTPC Green Energy IPO is not yet finalized, but it is expected to happen in the first or second week of November. The IPO is estimated to be worth INR 10,000 crore.

What are the main growth drivers for NTPC Green Energy?

The main growth drivers for NTPC Green Energy include government initiatives such as 24/7 power for all, electrification of railways, increased electric vehicle (EV) penetration, rural electrification, and India's rapid urbanization. Additionally, global and national efforts to reduce carbon emissions are boosting the demand for renewable energy.

What are some of NTPC Green Energy’s key business strengths?

NTPC Green Energy benefits from being a part of NTPC Limited, a Maharatna PSU, which gives it a AAA credit rating. This enables the company to raise capital at lower interest rates, which is critical in the capital-intensive renewable energy sector. Additionally, the company operates with strong financials and maintains high operating margins.

What financial performance did NTPC Green Energy achieve in FY24?

In FY24, NTPC Green Energy reported an operating profit of INR 1,746 crore on a revenue of INR 1,962 crore, with a 90% EBITDA margin. The company has a net debt-to-equity ratio of 2.3 as of June 2024.

What are the key risks that NTPC Green Energy faces?

Key risks include concentration risk, as 98% of its revenue comes from top government utilities, with Telangana DISCOM alone contributing nearly 50%. Other risks include dependence on third-party suppliers for solar components, operational risks from delays in project execution, and competition from other renewable energy producers.

How does NTPC Green Energy compare to its competitors in terms of return on capital?

NTPC Green Energy reported a cash return on gross capital invested at 9.6%, which is lower than competitors like Tata Power and Renew Power (10.8%) and Adani Green (14.7%). This lower return is partially due to its large capital investments and under-construction assets.

How does NTPC Green Energy plan to expand beyond solar and wind power?

NTPC Green Energy is investing in new technologies, including hydrogen energy, green chemicals, and battery storage. The company is also developing a green hydrogen hub in Andhra Pradesh and exploring large-scale battery storage to complement its solar and wind power operations.

What is the long-term outlook for renewable energy in India, and how does NTPC Green Energy fit into it?

India is focused on achieving 50% of its electricity production from non-fossil fuels by 2030, as part of its commitment to reduce carbon emissions by 45%. NTPC Green Energy, being a major renewable power producer, is well-positioned to capitalize on this transition, particularly with its strong solar and wind power capacity.

How can investors increase their chances of getting an allotment in the NTPC Green Energy IPO?

One way to increase IPO allotment chances is by purchasing shares of NTPC Limited, as the IPO is expected to offer a separate quota for existing shareholders of the parent company. Owning at least one share of NTPC Limited before the cutoff date can allow investors to apply in both the retail and shareholder quotas.