NTPC Green Energy IPO Review: Should You Apply?

NTPC Green Energy Limited, a wholly-owned subsidiary of NTPC Limited, operates in the renewable energy sector, primarily focusing on solar and wind power projects. The company is rapidly expanding its renewable energy portfolio, contributing to India’s clean energy goals. As part of its growth strategy, NTPC Green Energy is planning to raise funds through its Initial Public Offering (IPO). In this blog, we will review the NTPC Green Energy IPO, its strengths, risks, and expert opinions to help you make an informed investment decision.

About NTPC Green Energy Limited

Founded in 2022, NTPC Green Energy is dedicated to producing and supplying renewable electricity, focusing on utility-scale solar and wind power projects. The company operates across multiple states in India and secures long-term power purchase agreements (PPAs) or letters of award (LoAs) from government agencies and public utilities. By August 2024, NTPC Green Energy had operational capacities of 3,071 MW in solar energy and 100 MW in wind energy, with a total contracted capacity of 14,696 MW.

The company is led by Mr. Gurdeep Singh as the Managing Director and is rapidly scaling its renewable energy assets to contribute significantly to India’s energy grid.

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Strengths of NTPC Green Energy IPO

1. Growing Renewable Energy Portfolio: NTPC Green Energy has an impressive renewable energy capacity of 14,696 MW as of June 2024, with 2,925 MW operational. The company operates a diverse mix of solar and wind energy projects across six states.
2. Robust Revenue Growth: The company has demonstrated significant revenue growth, with a remarkable increase of 1,094.19% from FY23 to FY24, reaching Rs 1,962.60 crore in revenue. The profit after tax (PAT) also saw a substantial increase of 101.32% in the same period.
3. Strong Backing from NTPC Limited: Being a subsidiary of NTPC Limited, one of India’s largest energy companies, NTPC Green Energy benefits from financial stability, expertise, and government support in the renewable energy sector.
4. Long-Term Contracts: NTPC Green Energy has secured long-term PPAs with key off-takers, providing steady revenue streams for its projects, which further strengthens the investment case.

Risks Associated with NTPC Green Energy

1. Concentration of Off-Takers: A significant portion of the company’s revenue comes from a small group of utilities, with its top five off-takers contributing nearly 85% of the revenue. The loss of any major off-taker could severely impact the company’s financial health.
2. Dependence on External Suppliers: The company relies on third-party suppliers for essential components like solar modules and wind turbines. Any delays or disruptions in the supply chain could affect project timelines and operational efficiency.
3. Geographic Concentration: A large portion of the company’s projects are concentrated in Rajasthan, which accounts for over 60% of its operational capacity. Any adverse conditions in this region could affect the company’s overall performance.
4. Legal and Financial Liabilities: The company, its promoter, and some directors are involved in legal proceedings. Additionally, NTPC Green Energy has significant outstanding borrowings of Rs 16,235.09 crore, which could be a potential risk if not managed properly.

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Financial Performance Overview

Revenue and Profit:

• Revenue
  FY23: Rs 170 crore
  FY24: Rs 1,962 crore
  Growth: 1,094.19%
• Profit After Tax (PAT)
  FY23: Rs 171 crore
  FY24: Rs 345 crore
  Growth: 101.32%

Assets:

• Total Assets
  FY23: Rs 18,431 crore
  FY24: Rs 27,206 crore

IPO Objectives

The funds raised through the NTPC Green Energy IPO will be used for:

• Investment in NTPC Renewable Energy Limited (NREL) for repaying certain outstanding borrowings.
• General Corporate Purposes.

Expert Opinion on NTPC Green Energy IPO

Dilip Davda, a well-known IPO expert, has stated that NTPC Green Energy is one of the leading renewable power generating PSUs with solar, wind, and hydroelectric assets. Despite its robust growth and solid business model, the IPO is aggressively priced based on FY25 earnings. While the company has shown profitability and is making significant strides in the renewable energy sector, the IPO is seen as a long-term investment bet.

Recommendation:
Well-informed and cash-surplus investors looking for long-term investments may consider applying for the IPO, given the growing demand for renewable energy and the backing of NTPC Limited. However, the pricing and some of the risks associated with customer concentration and legal issues warrant a cautious approach.

SBICAP Securities Limited has given an Apply recommendation for this IPO.

Should You Apply for NTPC Green Energy IPO?

The NTPC Green Energy IPO offers an exciting opportunity for investors interested in the renewable energy sector. While the company shows strong growth prospects and solid backing from NTPC, the IPO is priced aggressively, and there are several risks associated with customer concentration and supply chain dependencies. Long-term investors looking for exposure to India’s renewable energy transition may consider investing in this IPO, but it is essential to evaluate your risk tolerance before making a decision.

This review of the NTPC Green Energy Limited IPO aims to provide you with an overview of the company’s strengths, risks, and financial performance. For investors seeking exposure to India’s renewable energy sector, this IPO could be a potential investment, but it requires careful consideration of the associated risks.

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