NTPC Green Energy IPO Now Open: Know All About It!

NTPC Green Energy Ltd. (NGEL), a wholly-owned subsidiary of NTPC Limited, has launched its much-anticipated IPO.

• It is now open for subscription between 18 to 21 November 2024
• NGEL is planning to raise funds ₹10,000 crore with this IPO

This move not only shows NTPC’s commitment to renewable energy but also reflects India’s long-term goals of achieving sustainable development and carbon neutrality. It is supposed to mark a significant milestone for India's contribution to a green energy transition.

With its opening, NGEL’s IPO has become the third-largest IPO of 2024, behind Hyundai Motors India (₹28,756 crore) and Swiggy (₹11,327 crore).

The subscription has reached 25% within just one day of opening.

As an investor, you can take advantage of this opportunity to become a part of the country’s renewable energy journey. But first, I’m hoping you follow this: A vital rule before investing– “know about the company’s fundamentals”.

So, let’s start by doing just that!

About NTPC Green Energy Ltd.

NGEL is a 100% subsidiary of NTPC Limited, a Maharatna Central Public Sector Enterprise (CPSE) in India. It was established on 7 April 2022 as part of NTPC’s strategy to diversify into non-fossil fuel-based (renewable) energy.

On 28 February 2023, the company inherited 15 existing solar and wind assets from NTPC, along with a 100% shareholding in NTPC Renewable Energy Limited (NREL). See the figure below for a better understanding of the company and its subsidiaries:

As of FY24, NGEL is India’s largest renewable energy public sector company (excluding hydro) based on operational capacity and power generation.

Operational Capacity:

Its operations and future projects themselves can tell you about its big-scale commitment to the green energy transition.

• As of 31 August 2024, it has 3,071 MW of solar projects and 100 MW of wind projects across 6 Indian states.
• These large-scale and utility-focused renewable energy projects aim to supply power to both PSUs and private corporations.

Future Projects:

NGEL’s total portfolio of 14,696 MW includes 2,925 MW of operational projects and 11,771 MW of contracted/awarded (expected to go operational in the future) projects.

Moreover, these projects have already signed Power Purchase Agreements (PPAs) or Letters of Award (LOAs).

Now, let’s look into what this IPO is bringing for the investors, the renewable energy industry, and the Indian economy.

NGEL’s IPO Details

While its subscription has already started, its listing date and other details are given in the table below:

All the issues will be issued fresh, which means that existing shareholders like founders, early investors, or company employees will have no involvement in selling their shares to the public through this IPO (₹0 as OFS).

Thus, the IPO funds will likely be utilised for project expansions and exploring innovative energy solutions.

Whenever a “highest IPO” comes into the market, it often grabs a lot of attention. However, for many of them, things didn’t go as expected. Paytm, Reliance, LIC and even Hyundai, the biggest of 2024, registered losses on their listing days. 👇

Investors shouldn’t just chase the highest IPOs, but they should evaluate the company’s fundamentals. And this can be done by Finology Ticker, which provides in-depth stock analysis.

Moving ahead, let us understand its GMP, which serves as a crucial indicator of investor as well as market sentiment ahead of an IPO’s listing.

What to Expect From NGEL IPO & Its GMP Status

First, have a look at NGEL’s Grey Market Premium (GMP) status.

The GMP for NTPC Green Energy has recently seen fluctuations. NGEL shares are currently trading at a 9% premium in the grey market, around ₹3 above the IPO issue price.

Its GMP has dropped from the 25% recorded last week, showing a lack of enthusiasm among investors. This decline is driven by factors like Foreign Institutional Investors (FII) selling. In november's mid-week, FII sold equities worth ₹2,502.58 crore, which contributed to the fall of GMP.

Moreover, as per the latest update on 17 November, the GMP for the IPO is ₹1 per share. Earlier, on 12 November, NGEL’s GMP was ₹9 per share. Now, with its public issue’s price band set as ₹108, it is expected to list at ₹109 per share, reflecting a 0.93% gain.

The lower GMP shows reduced excitement in the grey market, which might mean that investors are being cautious due to market volatility and low liquidity in the primary market.

In short, this caution is a reflection of broader market issues and weak investor confidence.

With all the information so far, you can get a better picture of NGEL as a company and its current market standing. In case you are new in the investing world and want to understand all the financial terms and the stock market in depth, Finology Quest can answer all your questions.

If you think you know enough to invest in NGEL, company financials toh dekh lo!

NGEL’s Financials

NGEL's revenue has grown consistently, rising from ₹910.42 crore in FY22 to ₹1,962.60 crore in FY24. Most of its revenue comes from renewable energy sales, primarily solar and wind power.

Its EBITDA margins haven't fluctuated much, remaining between 88% to 90% over the past three years.

Check the table below to understand multiple aspects of its financial performance:

Its Profit After Tax (PAT) margins show its good financial health to a certain extent.

If you look closely into the PAT and EBITDA numbers, you’ll observe fluctuations in both (more in the first one, lesser in the latter).  

• The sharp rise in PAT margin in Fiscal 2023 may be due to better operations or favourable market conditions.
• The decline in Fiscal 2024 might be because of higher expenses from expansion or changes in energy prices.

Moreover, the company's operations rely heavily on third-party suppliers for essential components like solar modules, wind turbines, and power systems.

In Q1 FY2024, the largest supplier accounted for 37.08% of total supplies, and the top 10 suppliers contributed 92.58%.

Due to such dependency, the company is vulnerable to risks like supply chain disruptions or price volatility. Any of the disruption could delay projects and reduce profit margins.

Being a supplier for government and public utilities, NGEL's revenue fragments are as below:

• As of June 30, 2024, 82.7% of revenue came from the top 5 off-takers (power purchasers), with the largest buyer contributing 50%.
• And 97.66% of its revenue comes from the top 9 customers.

So, any financial trouble or the loss of a key customer could seriously affect the company's business and financial health.

Furthermore, there are some financial ratios that you should look into to better understand its financial position:

• Debt-to-Equity Ratio: Improved significantly from 4.41 in FY2022 to 1.98 in FY2024, highlighting reduced reliance on debt.
• Interest Coverage Ratio: Remains at a comfortable level above 2.80, indicating its strong ability to cover interest expenses with its earnings.

Both these ratios demonstrate its solid financial stability.

Now comes the most important question.

NGEL IPO: Should You Invest or Not?

Consider the following aspects before making a decision:

• Strong Parentage: Backed by NTPC Limited, ensuring financial stability and operational support
• Renewable Energy Growth: Well-positioned to capitalise on India’s transition to clean energy
• Proven Assets: Operational projects provide a steady revenue stream, while upcoming projects indicate future scalability

Moving the deciding needle towards its challenges:

• High Revenue Concentration: Dependence on a few buyers and suppliers poses risks
• Competitive Market: Competition, along with regulatory uncertainties, could impact its margins, growth, and long-term profitability
• GMP Fluctuations: Shows cautious market sentiment and investor hesitation due to broader economic concerns

The Bottom Line

As India is trying to implement a green energy utilisation approach and investing considerably in this sector, it’s no surprise that an IPO of a company like NGEL can spark excitement. However, it’s crucial to thoroughly understand the company’s fundamentals before you make any investment decisions.

What are your thoughts on this latest IPO related to our green and clean future? Have you prepared your mind to invest in it?

Feel free to tell me what’s boiling in your mind regarding this IPO in the comments section.

*Disclaimer: The stocks, companies, and policies discussed above aren't recommendations from Finology Insider but guest content and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.