NTPC Green Energy IPO: Mixed Investor Response, Low GMP, and Analysts' Concerns

The highly anticipated NTPC Green Energy Initial Public Offering (IPO) opened for subscription on Tuesday, November 19, with a lukewarm response from investors. Retail investors and shareholders of its parent company, NTPC Ltd., contributed to most of the bids on the first day.

Key Details of NTPC Green Energy IPO

NTPC Green Energy is aiming to raise ₹10,000 crore through this IPO, which comprises a fresh issue of 92,59,25,926 equity shares. Shares are available within the price band of ₹102-₹108 per share, and investors must apply for a minimum of 138 shares or multiples thereof.

The three-day bidding process for this renewable energy company’s IPO will close on Friday, November 22, 2024. On the first day, bids were received for 12,54,75,948 equity shares, amounting to 21% of the 59,31,67,575 equity shares on offer by 1:00 PM on November 19.

NTPC Green Energy IPO Subscription Details: Day 1

• Retail Investors: Subscribed 89%

• Non-Institutional Investors (NIIs): Subscribed 8%

• Employees' Quota: Subscribed 12%

• Shareholders' Quota: Subscribed 37%

• Qualified Institutional Buyers (QIBs): Yet to make significant bids.

About NTPC Green Energy

Incorporated in April 2022, NTPC Green Energy operates under the Ministry of Power as a subsidiary of NTPC Ltd. The company focuses on renewable energy projects, including solar and wind energy, through organic and inorganic growth strategies. As of August 31, 2024, NTPC Green Energy had an operational capacity of 3,071 MW from solar projects and 100 MW from wind projects, spanning six Indian states.

Grey Market Premium (GMP) Hits a Low

The grey market premium (GMP) for NTPC Green Energy has dropped significantly due to heightened market volatility and weak first-day subscription. Currently, the GMP is hovering between ₹0.7-₹1, suggesting a flat listing for investors. Notably, the GMP was around ₹25 before the IPO price band announcement.

Analysts' Mixed Opinions

Brokerage firms have expressed a largely positive long-term outlook for the company, citing:

• Strong parentage under NTPC.

• Rising demand for renewable energy.

• Positive cash flows and financial stability.
  However, analysts have flagged concerns over high valuations and regulatory uncertainties.

SAMCO's Recommendation to Skip the IPO

Divyam Mour, Research Analyst at SAMCO Securities, highlighted two primary reasons for advising against investing in this IPO:

1. Low Capacity Utilization Factor (CUF): The efficiency of NTPC Green Energy’s solar and wind projects lags behind competitors.

2. Overvaluation Concerns: Mour stated, “An analysis of the company's price-to-earnings (P/E) ratio against its peers indicates overvaluation, raising concerns about its long-term wealth creation prospects. Consequently, investors are advised to avoid the IPO.”

Financial Performance and Anchor Investors

For the quarter ending June 30, 2024, NTPC Green Energy reported a net profit of ₹138.61 crore and revenue of ₹607.42 crore. For the fiscal year 2023-24, the company’s net profit stood at ₹344.72 crore, with revenue of ₹2,037.66 crore.

The company also raised ₹3,960 crore by allotting 36,66,66,666 shares to anchor investors at the upper price band of ₹108 per share.

Brokerage Viewpoints

According to Nirmal Bang Institutional Equities, NTPC Green Energy leverages strong parentage, a diversified portfolio, and strategic partnerships. However, challenges include dependence on Power Purchase Agreements (PPAs), regulatory uncertainties, and high valuation multiples. “Compared to peers, the company’s ROE is lower, owing to lower leveraging. High valuation multiples make us believe that the company is fully priced relative to peers,” the brokerage added, giving a neutral rating to the IPO.

Listing and Other Details

• Book Running Lead Managers: IDBI Capital, IIFL Securities, HDFC Bank, and Nuvama Wealth Management.

• Registrar: KFin Technologies.

• Listing Date: Shares are set to list on BSE and NSE on Wednesday, November 27, 2024.

Conclusion

The NTPC Green Energy IPO has garnered mixed reactions, with retail investors showing moderate interest on the first day while institutional investors largely remained on the sidelines. Despite its strong parentage, focus on renewable energy, and positive cash flows, concerns surrounding high valuations, low capacity utilization factors, and regulatory uncertainties have tempered enthusiasm for the offering.

While the grey market premium hints at a lackluster listing, long-term investors with a high-risk appetite may find value in the company’s renewable energy portfolio and strategic growth plans. However, analysts like SAMCO Securities urge caution, highlighting overvaluation and efficiency concerns. Investors are advised to evaluate the risks carefully before making their decision, especially in light of the current market volatility.