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NTPC Green Energy

• NTPC Green Energy is coming out with a 100% book building; initial public offering (IPO) of 98,14,02,869 shares of Rs 10 each in a price band Rs 102-108 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on November 19, 2024 and will close on November 22, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 10.20 times of its face value on the lower side and 10.80 times on the higher side.
• Book running lead managers to the issue are IDBI Capital Markets & Securities, HDFC Bank, IIFL Capital Services and Nuvama Wealth Management.
• Compliance Officer for the issue is Manish Kumar.

Profile of the company

NTPC Green Energy is a wholly owned subsidiary of NTPC, a ‘Maharatna’ central public sector enterprise. It is the largest renewable energy public sector enterprise (excluding hydro) in terms of operating capacity as of September 30, 2024 and power generation in Fiscal 2024. Its renewable energy portfolio encompasses both solar and wind power assets with presence across multiple locations in more than six states which helps mitigate the risk of location-specific generation variability. The company’s operational capacity was 3,220 MW of solar projects and 100 MW of wind projects across six states as of September 30, 2024. It is strategically focused on developing a portfolio of utility-scale renewable energy projects, as well as projects for public sector undertakings (PSUs) and Indian corporates. The company’s projects generate renewable power and feed that power into the grid, supplying a utility or off-taker with energy. For its operational projects, it has entered into long-term Power Purchase Agreements (PPAs) or Letters of Award (LoAs) with an off-taker that is either a Central government agency like the Solar Energy Corporation of India (SECI) or a State government agency or public utility.

The company measures the rated capacity of its plants in megawatts in alternate current (AC). Rated capacity is the expected maximum output that a power plant can produce without exceeding its design limits. “Megawatts Operating” represents the aggregate megawatt rated capacity of renewable power plants that are commissioned and operational as of the reporting date. “Megawatts Contracted & Awarded” represents the aggregate megawatt rated capacity of renewable power plants as of the reported date which include (i) PPAs signed with customers, and (ii) capacity won and allotted in auctions and where LoAs have been received.

The company is promoted by its parent company -- NTPC, India’s largest power company both in terms of installed capacity as of March 31, 2024 and power generation in Fiscal 2024. The company is a public sector enterprise under the ownership and administrative control of the Ministry of Power (MOP) of the Government of India (GoI). The company benefits from the support, vision, resources and experience of NTPC and its consolidated subsidiaries, associates and joint ventures (NTPC Group), which is looking to expand its non-fossil based capacity to 45-50% of its portfolio that will include 60 GW renewable energy capacity by 2032. The NTPC Group is committed to its long-term success as its sustainability arm and partner and looks upon it to lead its efforts in proactively supporting India’s energy transition to cleaner renewable energy.

Proceed is being used for:

• Investment in its wholly owned Subsidiary, NTPC Renewable Energy (NREL) for repayment/prepayment, in full or in part of certain outstanding borrowings availed by NREL
• General corporate purposes

Industry Overview

Renewable sources are a clean source of energy as they do not burn like fossil fuels, preventing the release of pollutants into the air. Increasing use of RE would help avoid carbon emissions, and thereby, restrict global warming. Further, the wide availability of these resources makes them less susceptible to depletion unlike conventional sources of energy. While there are multiple renewable sources that can be utilised, including solar, wind, small hydro, biomass, and bagasse remain key sources. Renewable energy installations (incl. large hydro) have increased to 201 GW as of September 2024, as compared with 63 GW as of March 2012 (source: MNRE), led by various central and state-level incentives. As of September-2024, installed grid connected RE generation capacity (incl. large hydro) in India constituted 45% of the total installed generation base in India. This growth has been led by solar power, which has grown to 91 GW from merely 0.09 GW over the discussed time period (i.e., from March 2012). However, owing to lower capacity utilisation factors, the RE penetration (incl. large hydro) in terms of energy generation was at 187 BUs for fiscal 2025 (as of Aug-2024).

With the increased support of the Government and improved economics, the RE sector has become attractive from an investor’s perspective. During fiscals 2018 to 2024, India added around 76 GW of RE (incl. large hydro) capacities. The installed RE (incl. large hydro) capacity has grown from 114 GW in fiscal 2018 to 201 GW in fiscal 2025 (as of September 2024) at a CAGR of 9%. Solar segment led the capacity additions with cumulative additions of 69 GW followed by wind 13 GW during the same period. The other RE sources added 5 GW during the same period. In the renewable energy basket (including large hydro) as of September 2024, solar energy accounted for a share of 45%. Growth in the solar power sector over the last five years has been robust. As much as 69 GW capacity was added in the segment over fiscals 2018-25 (as of September 2024), registering a CAGR of 24.7%, although on a low base. 

The GoI imposing solar RPOs across Indian states in 2011, coupled with the sharp drop in capital costs, led to most states releasing solar polices. This resulted in a spur in solar sector investments. Till fiscal 2012, only Gujarat and Rajasthan had state solar policies. After the success of Gujarat’s solar policy, other states such as Andhra Pradesh, Tamil Nadu, Karnataka, Madhya Pradesh, and Telangana introduced their respective solar polices. The National Institute of Solar Energy estimated the country’s solar potential at 748 GW, assuming solar PV modules cover 3% of the geographical surface. India is a perfect location for solar energy because of its location. It has 300 days of sunshine each year, with daily peak electricity use being in the evenings and a seasonal peak in the summer. Solar sector growth in India primarily spurred by robust government backing, demonstrated through an aggressive tendering strategy. Some of the key catalysts include technological advancements, affordable financing, supportive policies, thrust on go-green initiatives/sustainability targets, cost optimisation due to increased grid electricity tariffs, subsidy initiative (specially in rooftop solar) and various incentives such as ISTS charge waiver. Solar capacity addition is expected to be 137-142 GW over fiscal 2025-2029.

Pros and strengths

The company is promoted by NTPC: The company is among the top 10 renewable energy players in India in terms of operational capacity as of September 2024. It benefits from the support, vision, resources and experience of the NTPC Group, which is looking to expand its non-fossil based capacity to 45-50% of its portfolio that will include 60 GW renewable energy capacity by 2032. The NTPC Group is committed to its long-term success as its sustainability arm and partner and looks upon it to lead its efforts in proactively supporting India’s energy transition to cleaner renewable energy. The NTPC Group is a large-scale integrated energy business with an electric power generating capacity of over 76 GW as of September 30, 2024 across coal, hydro, gas and renewable operations with a Pan-India presence.

Portfolio of 16,896 MWs solar and wind projects: The company has large portfolio of utility-scale solar energy projects and wind energy projects, as well as projects for PSUs and Indian corporates. These projects generate power and feed that power into the grid, supplying a utility or off-taker with energy. As of September 30, 2024, it had 17 off-takers across 41 solar projects and 11 wind projects. As of September 30, 2024, all of its off-takers from which it earned revenue in the six months’ period ended September 30, 2024 were government agencies and public utilities with which it has long-term PPAs with an average term of 25 years. As of September 30, 2024, its portfolio consisted of 16,896 MWs including 3,320 MWs operating projects and 13,576 MWs projects contracted and awarded. As of September 30, 2024, its capacity under pipeline consisted of 9,175 MWs. Together its Portfolio and Capacity under Pipeline, as of September 30, 2024, consisted of 26,071 MWs.

Experienced team in renewable energy project execution: The company is the renewable energy arm and subsidiary of NTPC, and it along with the NTPC Group have a strong track record of developing, constructing and operating renewable power projects, driven by its experienced in-house management and procurement teams. As of September 30, 2024, it is in the process of constructing projects in 6 states consisting of 13,576 MWs, contracted and awarded. The company along with the NTPC Group have strong in-house experience in renewable energy project execution and procurement. The company’s in-house team, working with third-party aggregators, developers, and EPC contractors, manages the land acquisition process. Its power projects are located primarily on land leased from state governments and third parties and freehold land purchased by it from private individuals and entities. As of September 30, 2024, it owned around 8,900 acres of freehold land and around 45,700 acres of leasehold land relating to its projects.

Growing revenues along with strong credit ratings: The company’s revenue from operations has grown at a CAGR of 46.82% from Rs 9,104.21 million in Fiscal 2022 (on a special purpose carved-out basis) to Rs 19,625.98 million in Fiscal 2024 (on a restated basis). Its Operating EBITDA has grown at a CAGR of 48.23% from Rs 7,948.88 million in Fiscal 2022 (on a special purpose carved-out basis) to Rs 17,464.70 million in Fiscal 2024 (on a restated basis). Its Profit After Tax has grown at a CAGR of 90.75% from Rs 947.42 million in Fiscal 2022 (on a special purpose carved-out basis) to Rs 3,447.21 million in Fiscal 2024 (on a restated basis). With strong parent support and diversified portfolio with long term PPA, the company is able to maintain a healthy interest coverage ratio. As of September 30, 2024 and March 31, 2024, its interest coverage ratio was 2.60 times and 2.64 times (on a restated basis), respectively, and, as of March 31, 2023 and March 31, 2022, was 2.80 times and 3.17 times (on a special purpose carved-out basis), respectively.

Risks and concerns

Dependent on its relationship with Corporate Promoter -- NTPC: Currently, the corporate Promoter -- NTPC, owns an aggregate of 100% of its issued, subscribed and paid-up Equity Share capital. Its borrowing facility between Japan Bank for International Cooperation and NREL is supported by a guarantee by its Corporate Promoter. This facility may need to be refinanced if such guarantee was withdrawn for any reason. Except for its Executive Directors, all Key Managerial Personnel, Senior Management Personnel and all of its employees are on secondment from NTPC. There is no secondment agreement between the company and NTPC. The secondments are pursuant to office orders and the terms of which may be altered at any time. It cannot assure that its relationship with its Corporate Promoter will not deteriorate in the future. The company’s credit ratings and ability to raise financing are also affected by its Corporate Promoter’s creditworthiness, and the loss of its support could adversely affect its business and reputation.

Dependent on limited suppliers for supply of materials: The company’s business and profitability is substantially dependent on the availability and cost of solar modules, solar cells, wind turbine generators and other materials, components and equipment for its solar, wind and other projects. It is dependent on third party suppliers for meeting its materials, component and equipment requirements, and its top 10 suppliers accounted for 92.65% and 77.71% of its supplies in the six months’ period ended September 30, 2024 and in Fiscal 2024, respectively. Any disruption to the timely and adequate supply, or volatility in the prices of required materials, components and equipment may adversely impact its business, results of operations and financial condition.

Geographical constrain: In the six months’ period ended September 30, 2024 and in Fiscal 2024, 62.20% and 61.74%, respectively, of its operating renewable energy projects are concentrated in Rajasthan. Due to the geographic concentration of its operations, it is susceptible to local and regional factors, such as economic and weather conditions, natural disasters, political, demographic and population changes, adverse regulatory developments civil unrest and other unforeseen events and circumstances. Such disruptions could result in the damage or destruction of a significant portion of its mining capabilities, significant delays in production and/or otherwise materially adversely affect its business, results of operations and financial condition. The occurrence of any of these events could require it to incur significant capital expenditure or change its business structure or strategy, which could have an adverse effect on its business, results of operations and financial condition.

Business is seasonal in nature: The company’s quarterly and half-yearly operating results are difficult to predict and may fluctuate significantly in the future. The energy output performance of its solar projects is dependent in part on the amount of sunlight and the ambient temperatures. As a result, its revenue in the past has been impacted by rain and sunlight. The company’s solar energy output decreases in monsoon seasons due to less sunlight whereas it increases during winter and summer months. It has experienced seasonal and quarterly fluctuations in the past, and it may experience similar fluctuations in the future. However, given that the renewable energy industry is growing rapidly, those fluctuations may be masked by its recent growth rates and thus may not be readily apparent from its historical operating results. As such, its quarterly operating results may not be good indicators of future performance.

Outlook

NTPC Green Energy is a wholly-owned subsidiary of NTPC. It is a renewable energy company that focuses on undertaking projects through organic and inorganic routes. As of August 31, 2024, the company had an operational capacity of 3,071 MW from solar projects and 100 MW from wind projects across six states. As of June 30, 2024, the company's Portfolio consisted of 14,696 MW, including 2,925 MW of operating projects and 11,771 MW of contracted and awarded projects. On the concern side, the company is dependent on its relationship with its Corporate Promoter, NTPC, and any adverse developments in such relationship may adversely affect its business and reputation. The company is dependent on third party suppliers for meeting its materials, component and equipment requirements, and its top 10 suppliers accounted for 92.65% and 77.71% of its supplies in the six months’ period ended September 30, 2024 and in Fiscal 2024, respectively. Any disruption to the timely and adequate supply, or volatility in the prices of required materials, components and equipment may adversely impact its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 98,14,02,869 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 102-108 per equity share. The aggregate size of the offer is around Rs 10010.31 crore to Rs 10599.15 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 1,056.58% from Rs 1,696.90 million in Fiscal 2023 to Rs 19,625.98 million in Fiscal 2024, which was primarily due to the acquisition of the RE Assets and NREL near the end of Fiscal 2023. Moreover, the company’s profit for the year increased by 101.32% from Rs 1,712.28 million in Fiscal 2023 to Rs 3,447.21 million in Fiscal 2024.

In this growing market for renewable power, the company intends to continue to strengthen its position as one of the leading renewable energy companies in India (in terms of total commissioned capacity) in its core solar and wind energy businesses and focus on new geographies and new off-taker customers. The company intends to leverage its experience in executing large solar and wind energy projects to further win bids and tenders of Central and State government agencies and state public utilities. In particular, it aims to focus on gigawatt scale projects. Its prudent bidding approach and financial discipline is aimed at achieving predetermined internal rate of returns from its projects. To maintain a similar growth rate and to achieve its internal rate of returns, it intends to continue deploying a prudent approach which is backed by thorough diligence and data analysis of proposed projects.