NTPC Green Energy (NGEL), promoted by ‘Maharatna’ central public sector enterprise NTPC, is the largest renewable energy (excluding hydro) public sector enterprise in terms of operating capacity as of September 30, 2024. Operational capacity of the company as of Sep 30, 2024 was 3320 MW across six (6) states.

Capacity of the company including operational, contracted & awarded projects and pipeline projects (MOUs signed with off-takers but definitive agreement not yet entered) as of September 30, 2024 stood at 26071 MW [operational 3320 MW; contracted/awarded 13576 MW; Pipeline 9175 MW].

Of the operational capacity of 3320 MW about 3220 MW is solar capacity and 100 MW is wind. Similarly of the contracted & awarded 13576 MW capacity the solar is 10576 MW and wind is 3000 MW. Of the capacity under pipeline of 9175 MW about 6925 MW are solar and 2250 MW are Wind.

In terms of geography, of the operational 3320 MW capacity 62.20% [or 2065 MW, all solar] is in Rajasthan, 10.54% [or 350 MW, all solar], 10.54% [or 350 MW, all solar] in Madhya Pradesh, 7.98% [or 265 MW, all solar] in Uttar Pradesh, 7.53% [or 250 MW, all solar] in Andhra Pradesh, 6.93% [or 230 MW, all solar] in Tamil Nadu and 4.82% [or 60 MW Solar, 100 MW Wind] in Gujarat.

The company is strategically focused on developing a portfolio of utility-scale renewable energy projects, as well as projects for public sector undertakings (“PSUs”) and Indian corporate. Its projects generate renewable power and feed that power into the grid, supplying a utility or offtaker with energy. For its operational projects, the company have entered into long-term Power Purchase Agreements (“PPAs”) or Letters of Award (“LoAs”) with an offtaker that is either a Central government agency like the Solar Energy Corporation of India (“SECI”) or a State government agency or public utility.

As of September 30, 2024, it had 17 offtakers across 41 solar projects and 11 wind projects. It define offtakers as parties with whom it have megawatts operating, contracted or awarded (signed PPA or from whom it have received a LoA). As of September 30, 2024, all 9 of its offtakers from which the company 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.

Currently have signed joint venture agreements to produce renewable power with Rajasthan Rajya Vidyut Utpadan Nigam Limited (RRVUNL), Mahatma Phule Renewable Energy & Infrastructure Technology Limited (MAHAPRET), Damodar Valley Corporation (DVC) and two other PSUs and have signed MOUs or term sheets with other private corporate.

Renewable energy represents a significant and growing industry in India. The country is committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. As of September 2024, installed grid connected renewable energy generation capacity (including large hydro) in India was 201 GW constituted approximately 45% [Solar 20%, Wind 11%, biomass 2%, small hydro 1%, 10% large hydro] of the total installed generation base in India.

Solar energy 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 optimization due to increased grid electricity tariffs, subsidy initiative (specially in rooftop solar) and various incentives such as the Inter State Transmission System charge waiver. About 137-142 GW of solar capacity additions over Fiscal 2025 to Fiscal 2029 is expected in the country.

Wind power capacity additions to grow over the next five years led by pipeline build-up under existing schemes and new tendering schemes, improvement in technology, thrust on green hydrogen, renewable generation obligation and mixed resource models. About 34-36 GW of wind power capacity additions is expected over Fiscal 2025 to Fiscal 2029.

In Fiscal 2024, the company 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 company is investing in hydrogen, green chemical and battery storage capabilities and solutions as well as associated technologies. Current initiatives of the company in green hydrogen and green chemicals include the development of a green hydrogen hub at Pudimadaka and finalizing a tie-up for electrolysers. In the area of battery storage, it intend to install the Grid scale battery storage as part of Firm and Dispatchable Renewable Energy (FDRE)/Round-the-Clock (RTC) projects to complement the solar and wind power in addition to participate in standalone Grid scale battery energy storage system service tenders in the market for various DISCOMS or Grid balancing. Further, it is in the process to install Battery Energy Storage at a NTPC Thermal plant to smooth the flexibilization on pilot basis. According to CEA India will require at least 41.7 GW/208 GWh of battery energy storage systems and 18.9 GW of pumped storage of hydroelectricity by Fiscal 2030.

The company had two subsidiaries: NTPC Renewable Energy (100% owned by the Company) and Green Valley Renewable Energy (51% owned by the Company and 49% by Damodar Valley Corporation (DVC). It had one joint venture: Indian Oil NTPC Green Energy Private Limited (50% owned by the Company and 50% owned by Indian Oil Corporation Limited).

As of September 30, 2024, it owned approximately 8,900 acres of freehold land and approximately 45,700 acres of leasehold land relating to its projects. Its leasehold land is typically leased for 12 to 40 years. The leasehold land of it may be subject to conditions under the pertinent lease agreements. Such conditions typically include restrictions on leasehold interest or rights to use the land, continual operating requirements, and other obligations which include obtaining requisite approvals, payment of necessary statutory charges. In connection with the transfer of RE Assets from NTPC Limited to it, the company have not yet received the consent of the lessor of the assignment/novation of the transfer of land pertaining to the Rojmal and Jetstar projects.

The Issue and Object of the Issue

The public issue comprises of fresh issue of shares aggregating upto Rs 10000 crore.

Of the net proceeds from fresh issue, Rs 7500 crore is towards investment in NTPC Renewable Energy (NREL), a wholly owned subsidiary of the company, for repayment/ prepayment, in full or in part of certain outstanding borrowings availed by NREL; and the balance is for general corporate purposes.

As on Sep 30, 2024, the company had outstanding borrowings of Rs 17057.496 crore on a consolidated basis. Total borrowings include unsecured loans aggregating Rs 14525.461 crore from banks and financial institutions as of Sep 2024 end. The debt to equity ratio has been on post issue expanded equity is 0.9 times.

Strength

Portfolio and pipeline of 26071 MW in solar and wind projects, diversified across multiple geographies (span across nine states that are predominantly resource rich), which helps mitigate the risk of location-specific generation variability The portfolio are with strong diversification among 15 power procurers, backed by Power Purchase Agreement (PPA) for 25 years.

Benefit from the support, resources and experience of promoters i.e. NTPC, which has extensive experience in executing large scale projects, long term relationship with offtakers and suppliers and financial strength.

Along with the NTPC Group have a demonstrated track record of developing, constructing and operating renewable power projects, driven by its experienced in-house management and procurement teams.

The company is considered as a partner of choice by many PSUs for fulfillment of their renewable energy development goals.

Strong in-house O&M, project development and EPC capability with extensive experience in renewable energy industry to facilitate efficient operation of existing capacity and successful bidding and execution of projects tapping into strong industry tailwinds in IPP business in the country.

Long-term stable cash flows based on contracts with central and state government entities.

Access to diversified sources of funding;

Weakness

Derived a significant portion (more than 87%) of revenue from operations from its top five offtakers in Fiscal 2024, with the single largest offtaker contributing around 50% of revenue from operations in Fiscal 2024.

Availability of renewable equipments for its renewable projects at fair cost is crucial and any restrictions on renewable energy equipment imports or rise in equipment cost will adversely affect the profitable operations of the company.

Of its operating energy projects capacity about 62.20% is located in the state of Rajasthan.

The complete consummation of the acquisition of the RE Assets (from parent NTPC under BTA) was subject to certain post-closing actions such as the execution of assignment/novation agreements with third parties in relation to the contracts that have been transferred to the company, save for the PPA relating to the Rojmal wind plant, all consents for novation, transfer or sublease of land have been executed except in respect of the Jetsar and Rojmal projects.

Load dispatch centres may order the curtailment of renewable power generation despite their being accorded “must-run” status. Any constraints in the availability of the electricity grid, including inability of the company to obtain access to transmission lines in a timely and cost-efficient manner, could adversely affect the business.

Operating in a capital intensive business and incur significant capital expenditure in commissioning new renewable energy projects as well as upgrading and improving its existing projects. If not able to source funding for future renewable energy projects in a timely manner will adversely impact the financials of the company.

The regulatory and policy environment relating to renewable power in which it operates is evolving and subject to periodic change. Thus any reduction, modification or elimination of government and economic incentives may reduce the economic benefits of existing renewable energy projects and opportunities to develop or acquire new renewable energy projects.

Changes in technology may render its current technologies obsolete or require it to make substantial capital investments. Further use of battery energy storage system (“BESS”) technology is subject to certain risks.

The business is seasonal and its operating results may fluctuate from period to period. The energy output performance of solar projects is dependent in part on the amount of sunlight and the ambient temperatures. The performance of solar power projects is affected by varying radiation levels and it can only be estimated based on historical average Global Horizontal Irradiance (“GHI”) data and soiling losses, which may fluctuate during a period and lead to the unreliability of such predictions. Similarly the energy output performance of wind projects is dependent on wind patterns and wind speeds.

Counterparties to PPAs entered by the company for its projects may not fulfill their obligations and expose the projects and the company to risks

Face significant competition from both traditional and renewable energy companies and any failure to respond to market changes in the renewable energy industry could adversely affect the business, financial conditions and results of operations.

NTPC, the corporate promoter of the company has, in the five years preceding the date of this Red Herring Prospectus, faced regulatory actions by regulators and had certain fines levied on it.

Except for its Executive Directors, all Key Managerial Personnel, Senior Management and all of its employees are on secondment from NTPC, the parent company. Thus the company does not have control over the employee cost.

Any failure to adapt to industry trends and evolving technologies in the renewable energy sector to meet its customers’ demands and any failure in successful development of new renewable energy sources or systems like green hydrogen, green chemicals and energy storage systems initiatives in a timely and cost-effective manner, the business, financial condition, cash flows and results of operations may be adversely affected.

The renewable energy market in India is at a relatively early stage of development and trends in the renewable energy industry are based only on limited data and may not be reliable.

The “NTPC” trademark, name and logo do not belong to the company, which is registered in the name of its corporate promoter with the trademark registry.

Valuation

Consolidated re-stated revenue stood higher by 1057% to Rs 1962.60 crore in FY 2024 and the net profit was up by 101% to Rs 344.71 crore.

NGEL was incorporated on April 7, 2022 for the reorganisation of NTPC’s renewable energy business. Pursuant to the issuance of National Monetisation Pipeline (“NMP”) by the Ministry of Finance on August 23, 2021, and in consultation with the Ministry of Power, the RE Assets of NTPC Limited were transferred to NGEL at book value, through a business transfer agreement dated July 8, 2022. Further, NTPC Limited also transferred 100% of its equity shareholding held in NTPC Renewable Energy Limited (“NREL”) to NGEL through a share purchase agreement dated July 8, 2022. The transfer of the RE assets and 100% equity shareholding in NREL, were completed on February 28, 2023. As a result, in Fiscal 2023, NGEL had only 31 days of operation from February 28, 2023 and the restated consolidated financials for FY23 reflects only part of the fiscal. Thus for comparative purposes, the company have also prepared Special Purpose Carved-Out Combined Financial Statements for Fiscal 2023 and Fiscal 2022, which includes the carved-out business in respect of the RE Assets (part of the standalone financial statements of NTPC Limited until February 28, 2023) which has been combined with the standalone financial statements of NREL for the year ended March 31, 2022 and consolidated financial statements for the year ended March 31, 2023.

Consolidated sales for FY24 were up by 35% to Rs 1962.60 crore in comparison to Special Purpose Carved-Out Combined Financial Statements for Fiscal 2023. With OPM contract by 130 bps to 89%, the operating profit was up by 33% to Rs 1746.47 crore. The net profit was down by 24% to Rs 344.71 crore.

For the six-month period ended September 30, 2024, the sales were higher by 7% to Rs 1082.29 crore. The OPM contracted by 450 bps to 86.2% and the operating profit was up 2% to Rs 932.94 crore. Finally the net profit after MI was down by 15% to Rs 176.65 crore.

At the upper price band, the PE works out to 270 times of its EPS for TTM period ended Sep 30, 2024. The P/BV works out to 5 times and EV/Operational capacity works out to Rs 32.11 crore/MW.

In comparison Adani Green Energy and JSW Energy quotes at a PE of 165.7 times and 65.3 times of their EPS for TTM period ended Sep 30, 2024 and P/BV of 22.3 times and 4.6 times respectively. EV/Operational capacity stands at Rs 27.14 crore/MW and Rs 19.33/MW in case of Adani Green Energy and JSW energy respectively. The recently listed ACME Solar Holdings quotes at a PE of 120.5 times of its EPS for TTM period ended Jun 30, 2024 and a P/BV of 3.2 times.

Similarly other power generation companies with significant presence in renewable power with assets under captive/regulatory/merchant such as Orient Green Power, KPI Energy, Tata Power and NHPC quotes at a PE of 82.3 times, 42.5 times, 34 times and 26.4 times of its EPS for TTM period ended Sep 30, 2024 and P/BV of 1.9 times, 5 times, 3.8 times and 2 times.