NTPC Ltd shares hit new 52-week high Monday at 163.15 on NSE. The stock has gained about 31 per cent so far this calendar year. One reason for optimism on NTPC stock is that the Street expects the company to be able to achieve higher valuations for its renewable energy assets.
“Furthermore, the pre-money equity valuation of Rs 34000 crore, which Tata Power Company’s renewable platform was able to achieve, sets 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.”
In general, NTPC is a beneficiary of strong Power demand in the country. In addition, the company’s captive mines and coal linkages place it in a relatively better position as the tariffs are much lower compared to Indian Energy Exchange (IEX) prices. Amid increased demand and shortage of coal, the average market clearing price (MCP) touched down in the power market on IEX 8.9 per unit in April (on average till April 18). This is a further increase than the average MCP seen in March. In FY22, prices have averaged Rs 4.4 per unit.
On the other hand, NTPC’s average tariff for the nine months ended FY22 (9MFY22) stood at 3.91 per unit. “We believe that since the exchange is not proving to be a reliable instrument to meet the power needs of the discoms (distributor companies), due to exceptional prices due to huge gap in buying and selling, the discoms will attract more (buy). power agreement) ) PPA based thermal power is going forward, thereby benefiting NTPC,” analysts at ICICI Securities said in a report on April 12.
Moving forward, NTPC is transforming into an integrated power generation company with increasing focus on clean and green energy. According to ICICI Securities, in FY22, the share of non-fossil fuels in total installed capacity rose 30 basis points to 8.1%. One basis point is 0.01%. NTPC aims to increase its renewable portfolio and install 60GW (GW) of renewable energy capacity by 2032.
But for now, thermal power is witnessing growth as the electricity generated from renewable sources is not available round the clock as they have natural limitations. Thus, NTPC will benefit as coal based plants constitute the largest share of its total installed capacity. In FY22, the plant load factor of coal-fired plants reached 70.7%, and is expected to increase further as the requirement increases.
“With demand picking up, NTPC has ample capacity to respond to this,” said Abhitit 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 captive mines, the potential growth in supply of coal from Coal India Limited needs to be closely monitored.”