Shares of NTPC Ltd at 52-week high 163.75 on NSE on Monday. Eventually, the stock closed 6% higher, taking its return so far this calendar year to nearly 31%. In comparison, the Nifty 50 index has declined 1% year-on-year.
One reason for optimism on NTPC stock is that the Street expects the company to receive higher valuations for its renewable energy assets.
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“Money Pre-Money Equity Valuation” 34,000 crore which Tata Power Company’s renewable platform was able to achieve, setting a new benchmark for the industry. Rohit Natarajan, Analyst, Antique Stock Broking Ltd, said, “Potential deals at higher valuations for renewable assets of NTPC also cannot be ruled out.”
According to analysts at ICICI Securities, in FY12, the share of non-fossil fuels in NTPC’s installed capacity grew 30 basis points year-on-year (YoY) to 8.1% with renewable capacity addition of 502 megawatts (MW). . One basis point is 0.01%.
In addition, 40-45% 22,454 crore capital expenditure target for FY23 will be for renewable energy projects. NTPC aims to increase its renewable portfolio and install 60GW of renewable energy by 2032.
These factors augur well, but NTPC’s thermal power has been the focus. Coal based plants constitute the largest part of NTPC’s total installed capacity. At the end of FY 2012, coal plants accounted for 83% of NTPC’s total installed capacity.
Further, in FY 2012, the plant load factor of coal based plants reached 70.7% and is expected to increase further as per requirement.
“All India power demand was up 2% year-on-year in the quarter (Q4FY22) despite a higher base. Analysts at ICICI Securities said in a report, “High power demand and all-time high international coal prices will continue to aid growth for Coal India Limited (CIL) and thermal plants of domestic coal linkages of NTPC and others. Will boost the load factor.” According to ICICI Securities, NTPC’s Q4 revenue is expected to grow by 16% as on April 15.
NTPC’s tariffs are attractive in comparison to Indian Energy Exchange (IEX) prices. Its average tariff for the nine months ending December was 3.91 per unit, while the average market clearing price for the day-to-day electricity market on IEX was 4.4 per unit in FY22.
“With the rise in demand, NTPC has ample capacity to respond to this,” said Abhitram Anand, analyst, Emkay Global Financial Services Ltd.
However, there are offsetting factors. “The major downside risks in the medium term include acute shortage of coal, which will result in under-utilisation of NTPC’s capacities. Though the company has private mines, the potential growth in coal supply from Coal India Limited needs to be closely monitored.”