NTPC is one of the best plays on the increasing total addressable market for power capex – led by security of the grid and increasing renewables penetration. It is the beneficiary of both the worlds – conventional (CO) and renewables (RE). It has laid out a plan to add 24GW of thermal capacities and 64GW of RE capacities by 2032. As a result, visibility on cost plus or regulated earnings has improved. We estimate cost plus earnings to grow at 10-12% CAGR in medium term. We expect NTPC to accelerate RE capacity addition on the back of 20GW tied up capacity. As a result, we expect EBITDA of RE capacity to grow at 30% CAGR over the next three years. We resume coverage on NTPC with BUY and SoTP-based target price of INR 495 per share.
TAIL of conventional capacity is getting longer…
India needs additional thermal capacity during the energy transition to ensure security of supply. NTPC is the best vehicle to execute the needs given the lack of private interest in thermal capacity. It has increased its under construction portfolio of thermal power plants from 9GW to 24GW. As a result, we expect regulated equity to grow at 10% CAGR over the next 8 years.
…aided by relaxation in regulations
The regulator (CERC) in the new tariff period (FY25-FY29) has relaxed the regulations in favour of thermal power plants. We estimate an impact of INR 10bn in FY25E. NTPC reported under recovery of INR 8bn on a standalone basis due to stringent regulations. Details of the relaxation is in Exhibit 2.
RE Castle is under construction Companies with a) abilities to execute at low project cost, b) advantage of low cost of capital, c) advantage of huge scale – ability to source cheap, d) ability to execute complex RE bids (new RE bids are complex) and e) sourcing land to execute RE projects will likely have significant advantage over competition. We believe NTPC scores highly on all the above parameters. While near term RE execution has been disappointing, we expect RE cap add to pick up in FY26E.
Resume coverage with BUY rating We resume coverage on NTPC with BUY rating and SoTP-based target price of INR 495 per share.
Click here to download research report on NTPC by ICICI Securities
Leave a Reply