September 26, 2024
admin
NTPC Stock Research Report by ICICI Securities
Analysis dated 22 September 2024
Sector: Power & Mininig
Price on Analysis date: Rs. 424,
Target Rs. 495
(17% upside potential)
Target Period: 12 Months
NTPC Green Energy Limited (NGEL), a 100% subsidiary of NTPC, is looking to debut on exchanges as the company files its DRHP. In this note, we analyse NGEL’s business, look at its valuation metrics and evaluate key concerns. The company has an operational capacity of 3.2GW, 12GW of contracted under-construction renewable energy (RE) projects and future development pipeline at 11GW. NGEL is not only looking to set up utility-scale RE projects, but also tie up with corporates and PSUs for their captive RE requirements. We expect the return ratios for captive to be higher than utility-scale projects.
NTPC targets 60GW of RE capacity by FY32. We estimate revenue of INR 117bn, EBITDA of INR 95–100bn for its portfolio. EV to EBITDA remains the best valuation metric to analyse NGEL’s RE portfolio. Retain BUY and TP of INR 495 on NTPC.
Third-largest RE portfolio
NGEL has the third-largest contracted capacity of 15GW, after Adani Green (27GW) and Renew Power (16GW). Its portfolio consists primarily of utility-scale projects. However, NGEL’s operational portfolio is only 3.2GW with EBITDA of INR 17bn. Post filing of the DRHP, NGEL has won 0.4GW of solar projects . Well-stocked
NGEL is looking to raise primary capital of INR 100bn and as per the stated objective, it will be investing 20% as equity. We estimate a capital requirement of INR 600bn for funding its contracted portfolio. Given its stated objective of investing 20% as equity, we estimate that locked in portfolio will almost be fully
funded by the fund raise. It can always raise sub- debt from the parent entity to meet its equity commitment.
Expected EBITDA of locked in portfolio
The locked-in portfolio is likely to be commissioned by FY28. We estimate the EBITDA of locked-in portfolio at INR 95-100bn. NGEL has also entered into agreements and MoU with corporates to set up RE capacity (11GW; attributable capacity of 6.6GW) for their internal consumption.
Ratios that matter for evaluation of RE portfolio
The best metric for renewables portfolio is EBITDA for locked in renewables portfolio The success of a company will be measured by building the asset at low capex to EBITDA (<7.5 is good in our opinion). A better portfolio with a strong pipeline (agreements, land resources and cost advantages) can command higher multiples.
To study next Research Analysis.. Click
To Study our Small Cap Calls… Click
For Mutual Fund Guidance, Click chanakyaMFguidance.com
https://www.analysislibrary.com/avantel-ltd-stock-research-report/