InCred initiates coverage on this PSU poised to lead India's energy transition; sees potential gains of 21%

InCred Equities has initiated coverage on state-run utility major NTPC with an 'Add' rating and a target of Rs 385, implying potential gains of 21 per cent from the previous close.

The brokerage pointed out that the PSU is the country's leading power utility company, with a 17 per cent share  in the country’s installed power capacity having 76GW operational capacity and contributing 24% (422BU) to India’s total electricity generation in FY24.

NTPC's thermal and renewable energy focus

As per the brokerage the company's thermal power capacity is set to grow by 25GW by FY32F, which includes 11GW of capacity under-construction and 8.8GW of thermal projects to be awarded in FY25F, supporting the Central Electricity Authority or CEA’s forecast of 80GW additional thermal capacity by FY32F.

Alongside, NTPC’s listed subsidiary- NTPC Green Energy (NGEL) focuses on renewables, aiming at a capacity of 60GW by FY32F, with operational renewables to rise from 3.3GW in FY24 to 15GW by FY27F.

NTPC capitalizing on high-growth power sector

The country's power sector is on a high-growth trajectory with installed capacity expected to rise from 442GW in FY24 to 900 GW by FY32. The company's regulated business ensures stable earnings with a 15.5 per cent RoE for thermal projects, achieving an impressive plant load factor (PLF) of 77.25 per cent for coal plants in FY24 vs. the industry average of 69.5%. 

Its brownfield expansion at Rs100m per MW is set to drive regulated equity CAGR of 9 per cent to Rs 1,34,500 crore by FY27F.

Furthermore, renewable energy, spearheaded by NGEL, targets a scalable unregulated business model with long-term power purchase agreements or PPAs and the EBITDA margin of 89 per cent ensuring cash flow.

"With renewables’ share to reach 500GW by FY30F, NTPC is poised to lead India’s energy transition while maintaining grid stability, with peak demand likely to post a 7 per cent CAGR to 366GW by FY32F," said the brokerage report.

Large headroom to grow says Incred

The brokerage picks NTPC’ as the top investment in the country's energy transition space citing major capacity expansion and stable cash flow. Our SOTP valuation highlights NTPC’s leadership and growth potential.

The regulated thermal power business is valued at 1.55x FY26F BV, while subsidiaries and JVs are pegged at 1.9x FY26F regulated equity per share with a 20% holding company discount. The renewables segment, led by NGEL’s extensive pipeline, is valued at the CMP. This translates to a target price of Rs385, noted the report.

Ventures in green hydrogen (5GW), nuclear power (2.8GW), & PSP (8GW) provide further upside potential, it added.

Downside risks

Delay in plant commissioning, changes to CERC regulations and reduction in NGEL’s valuation are some of the downside risks at play for the stock.