NTPC's prospects appear robust, barring seasonal impact in August

Power generation decelerated 4.7 per cent year-on-year (Y-o-Y) to 155 billion units (BU) in August 2024.

This was the first downtrend in many years, albeit on a high base — generation had increased 19 per cent Y-o-Y to 163 billion units (BU) in August 2023.

The dip was partly due to excess rainfall, which pared cooling demand and also reduced need for irrigation.

Coal-based generation declined 5 per cent Y-o-Y to 101 BU.

Plant utilisation factor for coal-thermal declined 464 bps in August 2024 to 63 per cent.

Hydro-generation declined 2 per cent Y-o-Y to 24 BU with PLF (plant load factor) for hydro down 400bps to 59 per cent in August 2024.

Renewable energy (RE) generation declined 9 per cent Y-o-Y to 20 BU.

Gas-based generation dropped 29 per cent Y-o-Y to 2.5 BU.

However, 4.3 GW of RE tenders were floated in August.

This included solar tenders of 2.2 GW, Hybrid tenders of 1 GW, battery storage tenders of 600 MW and module supply tender of 500 MW.

About 1,700 MW worth of tenders were awarded in August 2024.

Regulated players, RE and hydro players seem more attractive from the valuation standpoint than merchant power players.

NTPC, given its dominant generation share, assured returns from regulated assets and robust capex plans seems like a good bet.

The PSU has projects across thermal, hydro and nuclear to add 7 per cent CAGR in regulated equity till financial year 2032 (FY32), assuming executions are on schedule.

The capex will cross Rs 7 trillion by FY2032. NTPC incurred capex of Rs 30,000 crore in FY24 (vs Rs 25,000 crore in FY23) with about 27 per cent of its FY24 capex on RE.

NTPC generates enough cash flow from operations (CFO) to meet equity infusions for RE, and fund conventional capex, and pay down regulated debt.

The RE business has 2x debt/equity, which results in low cash return on equity (RoE) for the renewable energy segment.

The current 76 GW of total capacity will expand to over 130 GW capacity by 2032. In FY24, it added 4 GW and 21 GW of capacity is now under construction and 26 GW under planning.

The RE target is 60 GW of capacity by 2032 with 9.2 GW of RE projects under construction, and a pipeline of 24 GW.

NTPC plans to commission 16 GW of RE capacity over the next three years.

The EBITDA and PAT of NTPC Green Energy (NGEL) stood at Rs 1,820 crore and Rs 343 crore in FY24 and NTPC is looking to file an IPO for NGEL in H2FY25 with NTPC as the holding company/ parent.

The regulated equity (Mar’24) stood at Rs 87,713 crore (Rs 82,094 crore in Dec’23 and Rs 77,628 crore in Mar’23) on standalone basis and Rs 104,331 crore (Rs 98,712 crore in Dec’23 and Rs 94,180 crore in Mar’23) on consolidated basis.

Of the other subsidiaries, NEEPCO is undertaking 2,626MW of new hydro projects and THDC is to commission a 1,000MW pumped hydro plant soon.

The nuclear project at Mahibaswara, which is being constructed through a joint venture, is likely to start groundbreaking over the next two years.

Apart from the necessity for timely project executions, there are concerns around very high thermal emissions.

CO2 capture costs could potentially even double coal-power costs.

NTPC must also lower water consumption to less than 2.5 litre/kwh to operate plants smoothly in water-stressed areas.

Those concerns apart, the steady power demand from a growing economy leads to high visibility and predictability of returns for NTPC and the expansions will keep it in step with a growing economy.

Listing the RE subsidiary would unlock market value.

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