Jefferies predicts 11% upside for NTPC stock on renewable energy growth

NTPC Ltd, India’s largest power utility, is poised for a potential 11% upside in its stock price due to the promising growth of its renewable energy arm, NTPC Green Energy Ltd (NGEL). According to a recent report by Jefferies India, the base case forecast values NTPC’s shares at ₹485, driven largely by the expanding renewable energy portfolio of NGEL. 

This projection could present a valuable opportunity for those considering share market investment.

NTPC Green Energy IPO and growth plans

NTPC Green Energy, which has already filed a draft red herring prospectus (DRHP), plans to raise up to ₹10,000 crore through an initial public offering (IPO). Jefferies noted that NTPC has chosen this route rather than seeking to raise its investment cap. The brokerage estimates that a 10-15% stake dilution, coupled with a 2x premium valuation of NTPC’s renewable business over its coal segment, could result in a substantial upside for NTPC’s overall stock performance.

Currently, NTPC Green Energy has a total of 3.2 gigawatts (GW) of operational capacity, which includes 3.1 GW from solar and 100 megawatts (MW) from wind. However, the company is aiming for a 19-fold increase to 60 GW by 2032, reflecting an ambitious compound annual growth rate (CAGR) of 44%. This massive expansion is projected to boost NTPC’s renewables portfolio, enhancing its attractiveness to investors looking for growth in the green energy space.

Valuation scenarios for NTPC stock

Jefferies provided several potential valuation scenarios for NTPC’s stock. In the base case, the price is forecast at ₹485, representing an 11% rise. In a more optimistic scenario, Jefferies sees a 34% increase, with the stock reaching ₹580. However, there is a downside risk, with the stock potentially falling by 33% to ₹290 if challenges arise. These varying scenarios highlight the importance of execution and risk management in NTPC’s renewable energy strategy.

Jefferies also emphasised that public sector units (PSUs) like NTPC face capital infusion limits in their subsidiaries, capped at 30% of net worth, though exceptions are sometimes made. NTPC has already invested ₹7,500 crore in NGEL and has outlined plans for capital expenditure (capex) exceeding ₹4 lakh crore, a significant portion of which will be allocated to renewable energy projects. 

The brokerage’s bullish outlook on NTPC’s renewable segment stems from NGEL’s ambitious growth plans, including 11.5 GW of contracted and awarded projects.

Risks and challenges for NTPC

Despite Jefferies’ optimistic forecast, there are several risks to consider. Key concerns include potential under-recovery of investments and delays in project execution, which could impact the company’s ability to achieve its ambitious renewable energy targets. NTPC’s win ratio of 46% in fiscal years 2022-24 demonstrates the company’s capability in securing renewable energy projects. Still, its ability to execute these projects on time will be critical in maintaining investor confidence.

Conclusion

Jefferies’ analysis points to a promising future for NTPC’s stock, driven by the growth of its renewable energy arm, NTPC Green Energy. With a potential 11% upside in the base case and even greater potential in optimistic scenarios, the stock offers a solid investment opportunity. 

However, risks such as execution delays and under-recovery should be closely monitored by those making share market investments in this sector. NTPC’s ability to achieve its ambitious renewable energy goals will be key to unlocking value for its shareholders in the coming years.