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* Oct-22 saw flattish power demand, with generation from RE witnessing 17% YoY growth, albeit conventional sources seeing a decline. Power sector’s 3-year CAGR generation remains at ~5%. Thermal generation was down 2.2% YoY, with 3-year CAGR at 3.7%. NTPC at the standalone level witnessed a ~12% YoY decline, largely due to seasonallylow demand scenario (typically, 3Q is a low demand period, with Q4 seeing significant ramp-up). Regarding coal, while production was up 6% YoY, offtake declined by 5% YoY.

* Q2FY23 power demand was also impacted, by heavy rains – Power generation witnessed 5% YoY growth in Q2FY23 as against ~17% during Q1FY23, on account of the low base due to Covid-19. Both, residential and agricultural demand, have high co-relation to the weather

* Heavy rainfall in Oct-22: All-India Rainfall in Oct-22 moved from 21% below normal to 50% above normal, largely due to good rainfall in the North and West, which are high percapita power consumption regions.

* NTPC – We increase our SoTP-based TP to Rs200/share (earlier Rs188), as we roll forward our valuation to Dec-23.

* Significant RE ramp-up on the anvil: NTPC had won bids worth 545MW in the RE space in FY19 which has significantly ramped up to ~3,300MW in FY22; this was on account of increase in the overall market size and NTPC’s high market-share. In terms of Installed and Under-construction projects, the portfolio has increased from ~1.3GW in FY19 to ~8.5GW at the end of 1HFY23 – a >6.5x rise. From the overall portfolio perspective, the size has increased by ~3.5x between FY19 and FY22. NTPC presently has ~11.5GW of RE projects, which are at various stages of operation, construction and tendering. India’s three largest floating solar projects, of 100MW at Ramagundam, of 92MW at Kayamkulam and 25MW at Simhadri, have been commissioned. It is setting up the country’s largest Solar Park, of 4.75GW in Gujarat. It has plans to develop another ~19GW UMREPP over various stages. NTPC has invited bids for 3,000MWh ESS and 500MWh BESS. Company has planned NIT for 1,000MW PSP.

* RE monetization at NTPC Green Energy (NGEL) in the near term: NTPC will be transferring its existing RE assets to NGEL as well as its entire stake in NTPC REL. NGEL will be housing future storage and hydrogen-related projects as well. NTPC intends to offload 10-20% in NGEL; this is expected to materialize in 3QFY23/4QFY23. Of the standalone capacity, 1,941MW of operational and 920MW of under-construction capacities will be transferred to NGEL. NREL is represented by under-construction capacity (of 3,550MW) as well as by near-construction capacity, i.e. bids won and to be awarded (of 650MW)

* Next round of coal additions – 5/6GW awarding in next 2/3 years: NTPC has already awarded the Talcher Thermal Power Project, through 2 x 660MW EPC contracts recently. The company will be awarding another 3/4 projects over the next ~2 years. All these will require capex of Rs400-500bn to be completed by FY28/FY29. NTPC has been notified by the GoI to order ~7GW of thermal capacity. Brownfield expansion makes it possible to set up one unit at some plants, while 2-3 units can be added at some large projects like Meja and Telangana. Net, another 3-4GW generation is possible at the current plants. This will be contingent on aspects like coal availability, environmental clearance and actual requirement in the grid.

* Overall capacity addition at group level – Around >18GW addition over next 3 years: Based on the current pipeline of thermal, hydro and solar projects, NTPC at the group level would add ~18GW of projects over 3 years, with upside on RE side possible.

* Valuation and outlook: NTPC has a strong medium-term expansion plan, which comprises of additions across the thermal, hydro and RE spaces. At CMP, the stock trades at 1.2x/1.1x on FY25/FY24 BV, with 12-12.5% RoE. Buy with TP of Rs200.

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