NTPC Green Energy Limited (NGEL) is a subsidiary of NTPC Limited. This company was created to accelerate NTPC’s renewable energy ambitions. With a current operating capacity of 3,320 MW (3,220 MW from solar and 100 MW from wind), NTPC Green Energy has positioned itself as a key player in India’s renewable energy market. Its focus is primarily to enable India to meet its net-zero commitments. Today, the NTPC Green shares have got listed on NSE and BSE. In this blog post, I’ll try to reason the share price target of this share for year 2025.
What sets NTPC Green apart is its strong backing by NTPC Limited. The brand name in a way ensures credibility and access to resources for large-scale project execution. Furthermore, NTPC Green has 13,576 MW of renewable projects under construction and an additional 9,175 MW in the development pipeline. These numbers are massive, even by global standards.
The company operates through long-term Power Purchase Agreements (PPAs) with government agencies, which provide stable cash flows. This is crucial because the renewable energy sector can be highly volatile, especially in terms of tariffs and energy prices.
Topics:
1. Growth Drivers For NTPC Green
The growth story of NTPC Green Energy is fueled by a mix of strategic positioning, strong project pipeline, and favorable government policies.
- The company’s most significant growth driver is its pipeline of 13,576 MW of contracted and awarded projects. These are not just on paper but represent real commitments secured through competitive bidding processes. Additionally, 9,175 MW of capacity under development positions NTPC Green for sustained growth in the coming years.
- Another critical driver is India’s renewable energy target. With a goal to achieve 50% of installed capacity from renewable sources by 2030, government policies have provided substantial incentives to players like NTPC Green. These include long-term PPAs, viability gap funding for specific projects, and priority grid access. NTPC Green is strategically aligned with these initiatives, giving it an edge over competitors.
- Technological advancements also play a crucial role in growth. NTPC Green has adopted advanced operational techniques, including robotic cleaning systems, drone thermography, and live performance monitoring. These technologies enhance operational efficiency and reduce downtime.
As a result, NTPC Green can achieve higher capacity utilization rates, ensuring its plants produce maximum energy with minimal disruptions.
2. Financial Performance and Projections
NTPC Green Energy’s financial performance has been robust. It’s revenue from operations reaching Rs.19,626 million in FY2024.
This reflects a significant jump from previous years. The grown was driven by increased capacity and higher energy sales.
What stands out is also its profitability. The company reported an EBITDA margin of 89.39% for FY2024, showcasing efficient operations and cost management.
Looking forward, NTPC Green is expected to maintain a compound annual growth rate (CAGR) of 15% in revenue over the next five years, supported by its large project pipeline.
The capital expenditure (capex) required to achieve this growth is significant, with an estimated annual investment of 60% of revenue in the short term.
However, as more projects become operational, this capex intensity is expected to taper off. It will allow the company to improve free cash flow generation.
While the company’s net profit (Rs.1,753 million in FY2024) appears modest relative to its revenue, this is largely due to its capital-intensive business model and reliance on debt financing.
- With a debt-to-equity ratio of 1.98, NTPC Green faces high interest expenses. It weighs in on the net profitability.
However, its long-term PPAs provide predictable cash flows. The cash flow will certainly help the company to manage debt obligations effectively.
Valuing NTPC Green Energy is challenging.
Based on a discounted cash flow (DCF) analysis I did for the company, the intrinsic value per share is estimated at only Rs.1.23. This is significantly lower than the IPO price of Rs.108 and current share price of Rs.121.
This gap suggests that the IPO is priced at a premium, reflecting market optimism about the renewable energy sector.
One key metric to watch is the company’s return on equity (ROE), which stood at a modest 2.14% in FY2024. While this appears low, it’s typical for a company in its growth phase, where returns are reinvested into new projects.
Investors must weigh the valuation premium against the company’s potential to deliver exponential growth once its pipeline projects become operational.
3. Macro and Sectoral Factors
India’s renewable energy sector is driven by a combination of positive factors. Starting from government policies, technological advancements, and global climate commitments.
NTPC Green Energy benefits directly from this macroeconomic backdrop.
- Policies like the National Solar Mission and incentives for wind energy projects ensure that companies in this space have the regulatory support needed for growth.
Challenges:
- The renewable energy market in India faces issues like tariff disputes, project delays, and grid integration challenges.
- Additionally, the company’s dependency on debt makes it sensitive to interest rate fluctuations, which are on the rise globally.
Despite these challenges, the broader push toward renewable energy offers a tailwind for NTPC Green.
4. Price Target for 2025
Estimating a share price target for NTPC Green Energy in 2025 requires balancing its growth prospects with current financial realities.
- Assuming a 15% CAGR in revenue and stable EBITDA margins of around 88%, the company’s operating profits are expected to grow significantly.
- By 2025, its earnings per share (EPS) could improve as capex intensity reduces and free cash flows increase.
Considering these factors, a realistic price target for 2025 could range between Rs.140 and Rs.160 per share.
This assumes that market sentiment around renewable energy remains positive and that the company successfully executes its pipeline projects.
However, if execution delays or regulatory changes occur, this target could be adjusted downward.
Conclusion
NTPC Green Energy’s IPO offers investors exposure to a high-growth sector backed by strong government support. The long-term demand for renewable energy is also going to increase over the years.
While, my calculated intrinsic value of ₹1.23 per share raises concerns about overvaluation, it’s essential to view this IPO from a broader perspective.
As a long-term investor, I see NTPC Green as a strategic bet on India’s clean energy transition. Its strong pipeline, operational efficiencies, and alignment with NTPC Limited’s resources provide a solid foundation for growth.
For investors willing to take on risk, NTPC Green offers a chance to be part of India’s renewable energy story. However, those looking for immediate returns might find the current valuation challenging.
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Have a happy investing.
