Expansion, value unlocking key triggers for NTPC

The power sector is always strongly correlated to economic activity and is receiving its share of investor attention as India’s post-Covid-19 recovery continues.

India’s leading integrated power producer, the public sector undertaking (PSU) NTPC controls around 25 per cent of India’s power capacity.

It continues to increase installed capacity, in thermal as well as renewables (solar, wind, green hydrogen) and hydropower and pumped hydro, and also has backward integration into coal mining, and explored nuclear.

In a recent announcement, it claimed that the group capacity including JVs, and subsidiaries has reached 73,824 megawatt or MW (73.8 gigawatt or GW).

This includes the trial operation of the first unit of 800 MW at Telangana Super Thermal Power Project in early September. NTPC’s standalone capacity is 57.8 GW.

The company is committed to achieve 60 GW of renewable capacity by 2032 and a total capacity of 130 GW by that calendar year.

For the next three years, it is guiding for 10 GW and 16 GW of conventional and RE addition, respectively.

This may be front-loaded with 7 GW of thermal being targeted by the 2024-25 financial year (FY25).

The consolidated cap­ex guidance is for Rs 27,104 in FY24, followed by Rs 38,692 cr­ore in FY25 and Rs 49,000 crore in FY26.

Between FY27-FY30, capex would rise to above Rs 50,000 crore per annum.

There is 17GW capacity under construction on track and 18 GW in the planning stage.

There is a visible renewable energy (RE) project pipeline of 20 GW.

This would take the consolidated regulated equity base to Rs 1.25 trillion by FY26 versus Rs 94,180 crore in FY23.

The profitability of the company is restricted by the return on regulated equity that is allowed by electricity regulations in the power it sells to state discoms.

The next review of regulated tariffs is in April 2024.

In the first quarter of FY24, adjusted net profit grew by 12 per cent year-on-year (Y-o-Y to Rs 3,794 crore as the regulated equity base increased 12 per cent Y-o-Y.

Unseasonal rains in June may have somewhat pulled down power demand since NTPC generated 2 per cent less Y-o-Y in the quarter.

But the company had substantially lower other income (down 20 per cent Y-o-Y) and higher tax incidence offsetting higher operating profit at Rs 11,369 crore (up 16.7 per cent Y-o-Y).

NTPC is considering an initial public offering (IPO) for its subsidiary — NTPC Green — which foc­u­ses on RE.

It has also approved hiving off the coal business into a subsidiary which could also be spun off.

According to the management, earlier atte­mpts to find a strategic partner to take a stake in NTPC Green have not worked out.

An IPO would, therefore, help unlock value.

NTPC mining would be a full-fledged subsidiary.

It achieved coal mining of 23 million tonnes in FY23 and targets 34 million tonnes in FY24.

The stock is very reasonably valued even after registering steady gains.

It offers a reasonable dividend yield of around Rs 7 per share, and this is also very predictable, given the nature of the business and the high government stake.

Several analysts have price targets in the range of Rs 260-270.

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