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A Pure Play In Renewable Energy With Strong Lineage

NTPC Green Energy Ltd. (NGEL), a wholly owned subsidiary of NTPC Ltd., a ‘Maharatna’ central public sector enterprise, focused on developing utility-scale solar and wind energy projects, as well as projects for PSUs and corporates. As of H1FY25, NGEL’s portfolio comprised 16,896 MW, including 3,320 MW of operational projects and 13,576 MW of contracted and awarded projects. Additionally, it has 9,175 MW capacity in the pipeline, bringing the total capacity to 26,071 MW. NGEL serves 17 offtakers across 41 solar and 11 wind projects and is currently constructing 36 renewable energy projects totalling 13,576 MW in 6 states. 

* The energy demand in India is projected to grow by ~5.5-6.0% over the next five years, driven by infrastructure investments, strong economic fundamentals, T&D expansion, and government reforms to enhance power sector.

* The nation's solar capacity additions are expected to be 137-142 GW over FY25FY29, and wind power capacity additions will be ~34-36 GW over FY25-FY29. (CRISIL Research)

* NGEL is the largest renewable energy public sector enterprise (excluding hydro) in terms of operating capacity in 6MFY25 and power generation in FY24.  

* In FY24, NGEL has emerged as the market leader in the winning capacities under Tariff Based Competitive Bidding in the sector with an aggregate capacity of 3.5 GW, which is equivalent to AC capacity of around 5 GW.

* The average capacity utilization factor (CUF) for solar assets improved from 19% to 24% between FY22- FY24, indicates efficient utilisation & increased power generation.

* Revenue/EBITDA/PAT grew by ~47%/~48%/~91% CAGR over FY22-24 on the back of strong energy sales, high-capacity utilisation and low costs.  

* NGEL has maintained strong EBITDA margins at ~89% (3-year average) and PAT margins at ~20% (3-year average) over FY22-24, led by superior execution and economies of scale.  

* From the net IPO proceeds, ?7,500cr will be utilised for debt repayment, and the D/ E ratio post IPO will shrink to 0.6x, indicating improved financial leverage.

* With strong parentage and a diversified portfolio backed by long-term PPAs (power purchasing agreements), NGEL is well-positioned to meet NTPC's target of 60 GW renewable capacity by 2032.  

* At the upper price band of ?108, NGEL is available at P/Bv of 4.9x (on FY25E annualised financials), which appears to be fairly priced. We assign a “Subscribe” rating for the issue on a long-term investment basis, considering its strong brand recall, superior execution capabilities, portfolio expansions, investment in nextgen energy solutions (Battery Energy Storage Systems & Green Hydrogen derivatives) and promising industry outlook. 

Purpose of IPO  

The IPO consists of only fresh issue of ?10,000cr. The proceeds from its fresh issuance worth ?7,500cr will be utilised for the repayment or prepayment of borrowings of its subsidiary NREL( NTPC renewable energy Ltd) and general corporate purposes.

Key Risks  

* NGEL derives more than 87% of its revenue from its top 5 offtakers and its singlelargest offtaker contributes ~50% to its revenue in FY24.  

* Regional concentration: ~62% of NGEL's operating renewable energy projects are concentrated in Rajasthan.  

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