NTPC Green Energy IPO opens for subscription today. Should you invest?

The Rs 10,000 crore IPO of NTPC Green Energy IPO opened for subscription today and will close on November 22, 2024. With the listing on NSE and BSE tentatively scheduled for Wednesday, November 27, 2024, the IPO has a price band of Rs 102-108. The offer entirely comprises a fresh issue of shares worth 92.59 crore shares.

As of November 11, 2024, NTPC's IPO had been subscribed 0.31x, with the retail category subscribing 1.27x to issue. However, the offer received muted responses from QIBs, who did not subscribe at all, and also from NIIs, who subscribed just 0.13x to the offer. Consequently, the company's GMP (grey market premium) was a mere Rs 1, taking the potential listing gains per share to just 0.93%.

NTPC Green Energy, incorporated in 2022, is a Maharatna company and a wholly-owned subsidiary of NTPC (National Thermal Power Corporation) Limited. The company is the largest public sector enterprise in the renewable energy space (hydropower not included) in the country in terms of operational capacity and power generation.

In the first half of FY25, ending on September 30, 2024, NTPC reported a net profit of Rs. 175.30 crore on a total income of Rs. 1,132.74 crore. However, the issue is not without its share of risks. As of June 30, 2024, the company had business relationships with nine off-takers. Out of this, a single entity accounts for nearly 50% of the company's revenue, while the top 5 make up over 85% of its revenue. Dependence on a limited number of off-takers poses a risk to revenue stability and overall performance.

Should you invest?

Most brokerage houses recommend subscribing to the IPO, but only from a long-term perspective. However, some experts also recommend staying away from the issue.

Per Anand Rathi's research, "On valuation parse at the upper price band Rs 108, the issue is asking for a market cap of Rs 9,10,000 million, and based on FY 2025e annualized earnings and fully diluted post-IPO paid-up capital, the company is asking for a PE of 259.56x, which appears aggressively priced. But considering its current established capacities and future expansion capacities, this is a pure long-term story. Therefore, we believe that this issue may be considered for its long-term growth.

Says Bajaj Broking, "If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a P/E of 257.14, and based on FY24 earnings, the P/E stands at 263.41. Thus, the issue appears aggressively priced. But considering its current established capacities and future expanded capacities, this is a pure long-term story. The company is a leading renewable power-generating PSU with assets in solar and wind power generation."

However, as the IPO note further adds, the IPO is considered aggressively priced based on FY25 annualized earnings. It advises investors who are well-informed and have surplus cash to consider investing moderate funds for the long term, as this represents a pure long-term investment opportunity.

On the other hand, SAMCO Securities recommends avoiding the offer. "As a subsidiary of NTPC operating in a high-growth segment, the company demonstrates significant future potential, leveraging NTPC's extensive experience in the sector. A peer comparison of key fundamentals presents a favorable image, with the company outperforming its peers in revenue growth, profit margins, and leverage ratios."

"However, its capacity utilization factor (CUF), a critical measure of a plant's electricity generation efficiency, is relatively lower for its solar and wind projects compared to competitors. Additionally, an analysis of the company's price-to-earnings (P/E) ratio against its peers indicates overvaluation, raising concerns about its long-term wealth.
creation prospects. Consequently, investors are advised to avoid the IPO," it added.