NTPC Green Energy IPO: Key takeaways from DRHP, NTPC share price target

NTPC Green Energy aims to raise Rs 10,000 crore through this public issue, which will consist solely of a fresh issue without any offer-for-sale component.

In Short

• NTPC Green Energy files for Rs 10,000 crore IPO
• ICICI Securities maintains 'Buy' rating on NTPC Ltd
• Needs Rs 60,000 crore for under-construction projects

NTPC Green Energy filed its draft red herring prospectus (DRHP) for an initial public offering (IPO) last week.

The company aims to raise Rs 10,000 crore through this public issue, which will consist solely of a fresh issue without any offer-for-sale component.

This IPO aligns with India’s ambitious renewable energy targets. The government has set a goal of boosting the country's renewable energy capacity to 500 gigawatts (GW) by 2030.

ICICI Securities on NTPC Ltd

In light of the DRHP filing, ICICI Securities has maintained its ‘Buy’ rating on NTPC Ltd. with a target price of Rs 495 per share.

The brokerage believes that NTPC’s renewable energy push, through its subsidiary NTPC Green Energy, will play a crucial role in its growth. ICICI estimates that NTPC Green Energy could achieve revenues of Rs 11,700 crore and an EBITDA of Rs 9,500-10,000 crore from its renewable portfolio.

The success of a renewable power company largely depends on its ability to build RE assets at lower capital expenditure (capex) and recover earnings before interest, taxes, depreciation, and amortisation (EBITDA) quickly.

ICICI Securities views NTPC Green Energy’s locked-in portfolio, which is set to be commissioned by FY28, as a positive factor. The locked-in portfolio refers to projects that have been contracted and awarded but are yet to be operational.

ICICI Securities believes that a key metric for evaluating a renewable energy company is the capex-to-locked-in-EBITDA ratio. A lower ratio indicates that the company is able to recover its investment faster. In the case of NTPC Green Energy, ICICI considers a ratio below 7.5 times as favourable. With a strong portfolio, land resources, and cost advantages, NTPC Green Energy is positioned well to meet its targets.

The DRHP reveals that NTPC Green Energy has the third-largest contracted capacity in India, at 15 GW.

This places the company behind Adani Green (27 GW) and ReNew Power (16 GW). Despite its large contracted capacity, NTPC Green Energy’s operational capacity stands at 3.2 GW, generating an EBITDA of Rs 1,700 crore. The company has recently secured an additional 0.4 GW of solar projects post-DRHP filing.

To meet its goals, NTPC Green Energy expects a capital requirement of Rs 60,000 crore to fund its under-construction projects.

The Rs 10,000 crore to be raised via the IPO is intended to fund the company’s renewable energy assets. NTPC typically follows a debt-to-equity ratio of 80:20 for its projects, with the equity portion supported by this IPO.

NTPC’s Position in India’s power sector

India is experiencing strong growth in power demand, particularly in the post-pandemic era.

ICICI Securities estimates that both base and peak power demand could grow at 6% annually over the next few years. To meet this demand, additional thermal capacity may be required in the medium term until storage solutions for renewable energy become economically viable.

The company has set a target of achieving 60 GW of renewable energy capacity by FY32. As of March 2024, NTPC’s renewable energy portfolio consists of a locked-in capacity of 20 GW, with 3.5 GW in operation and another 5 GW under construction.

The brokerage has issued a ‘Buy’ recommendation with an unchanged target price of Rs 495. The valuation breaks down as 18 times FY26 estimated earnings per share (EPS) of Rs 438 for NTPC’s thermal business and 12 times FY26 estimated enterprise value (EV) to EBITDA for its renewable energy portfolio.