NTPC Green Energy IPO: Key Fundamental Ratios To Evaluate Maharatna PSU NTPC Backed Rs 10,000 Crore IPO

Maharatna PSU giant, NTPC Ltd-backed NTPC Green Energy is among the much-awaited IPO in the sector. NTPC Green is likely to list on BSE and NSE, after launching its Rs 10,000 crore IPO in the primary market. Now, NTPC Green holds the third-largest capacity of renewable energy portfolio in India. Ahead of the IPO, as an investor it is important to know key ratios and fundamentals that will help in evaluating the stance in NTPC Green ahead.

NTPC Green Energy IPO: The NTPC subsidiary filed for DRHP on September 20 with Sebi. The company plans to raise to Rs 10,000 crore via a fresh issue of equity shares. There will be no offer for sale (OFS) in NTPC Green IPO.

IDBI Capital Markets & Securities, HDFC Bank, IIFL Securities, and Nuvama Wealth Management are the book running lead managers of the IPO.

Fundamental Analysis of NTPC Green Energy IPO:

NTPC Green with the third-largest contracted capacity of 15GW is tailing Renew Power which has a 16GW capacity, and Gautam Adani-backed company Adani Green Energy with a 27GW capacity in the lead.

Notably, NTPC Green's operational portfolio is only 3.2GW with an EBITDA of Rs 17bn. Post filing of the DRHP, NGEL has won 0.4GW of solar projects, as per the ICICI Securities report.

The brokerage is estimating a capital requirement of Rs 600bn for funding its contracted portfolio. Given its stated objective of investing 20% as equity, we estimate that the locked in portfolio will almost be fully funded by the fund raise. It can always raise sub- debt from the parent entity to meet its equity commitment.

Under the DRHP, NTPC Green revealed that it is planning to utilise up to Rs 7,500 crore of the total issue size for investing in its wholly-owned subsidiary NTPC Renewable Energy or repayment/ prepayment, in full or in part of certain outstanding borrowings availed by NREL.

The rest 25% of the IPO size will be used for general corporate purposes.

Hence, NTPC Green Energy is well-stocked.

Another key fundamental is of expected EBITDA of NTPC Green from lock-in portfolio. In this case, ICICI Securities note said that the locked-in portfolio is likely to be commissioned by FY28. The brokerage predicts the the EBITDA of locked-in portfolio at INR 95-100bn. NGEL has also entered into agreements and MoU with corporates to set up RE capacity (11GW; attributable capacity of 6.6GW) for their internal consumption.

Coming to ratios that matter for the evaluation of RE portfolio, as per ICICI Securities, the capex to locked-in EBITDA metric is ideal while evaluating a renewable portfolio.

The success of a renewable power company is determined primarily by its ability to build RE assets at lower capex, thus, recovering EBITDA faster, the brokerage pointed out.

Accordingly, in ICICI Securities view, a ratio less than 7.5x 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.

Financial Results Of NTPC Green Energy IPO:

As per the draft, NTPC Green's profit after tax (PAT) stood at Rs 1,386.11 million, while its FY24 profit is at Rs 3,447.21 million versus Rs 4,564.88 million PAT in FY24.

Further, its PAT margin stood at 23.96% as of June 2024 quarter, while its FY24 and FY23 margins were at 17.56% and 31.49% respectively.

However, NTPC Green Energy's net debt is high to Rs 147,718.07 million as of June 2024 quarter. In FY24, the debt was at Rs 123,245.97 million, which was more than doubled from debt of Rs 53,450.95 million in FY23. Net debt/equity ratio is also high at 2.32x.

Meanwhile, net worth of NTPC Green's has also surged to Rs 63,707.54 million by end of Q1FY25, whereas the net worth was at Rs 62,321.42 million.

Should You Buy NTPC Stock?

In its note, on valuation, ICICI Securities 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 Mar'24, 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."

Further, the brokerage maintained BUY on NTPC with an unchanged target price of INR 495, valuing the thermal business at 18x FY26E EPS of INR 438/share and RE portfolio at 12x FY26E EV/EBITDA.