The reasons behind powering ahead of NTPC shares

One reason for the optimism on the NTPC stock is that the Street hopes the company will fetch higher valuations for its renewable energy assets.

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“The steep pre-money equity valuation of ₹34,000 crore that Tata Power Co.’s renewable platform was able to garner, sets a new benchmark for the industry. A potential deal at high valuations cannot be ruled out for NTPC’s renewable assets as well,” said Rohit Natarajan, analyst, Antique Stock Broking Ltd.

In FY22, the non-fossil fuel share in NTPC’s installed capacity rose by 30 basis points year-on-year (y-o-y) to 8.1% with renewable capacity additions of 502MW (megawatt), according to ICICI Securities analysts. One basis point is 0.01%.

Further, 40-45% of the ₹22,454 crore capital expenditure target for FY23 will be for renewable energy projects. NTPC aims to enhance its renewable portfolio and install 60GW of renewable energy by 2032.

These factors augur well, but NTPC’s thermal power has been in focus. Coal-based plants form the largest portion of NTPC’s total installed capacity. As of FY22 end, coal plants accounted for 83% of NTPC’s total installed capacity.

Besides, in FY22, the plant load factor of coal-based plants reached 70.7% and this is expected to rise further as required.

“All-India power demand was up 2% y-o-y in the quarter (Q4FY22) despite a higher base. Higher power demand and all-time high international coal prices will continue to aid offtake growth for Coal India Ltd (CIL) and boost the plant load factor of thermal plants of NTPC and others with domestic coal linkages,” said ICICI Securities analysts in a report on 15 April. NTPC’s Q4 revenues are expected to rise by 16% y-o-y, according to ICICI Securities.

NTPC’s tariffs are attractive vis-à-vis the Indian Energy Exchange (IEX) prices. Its average tariff for the nine months ended December was ₹3.91 per unit, while the average market clearing price for the day-ahead electricity market on the IEX was ₹4.4 per unit in FY22.

“With an increase in demand, NTPC has enough capacity to respond to the same,” said Abhineet Anand, analyst, Emkay Global Financial Services Ltd.

However, there are offsetting factors. “Key downside risks in the medium term includes severe coal shortage, which would result in underutilization of NTPC’s capacities. Though the company has captive mines, the potential ramp-up in coal supplies from CIL needs to be closely monitored,” he said.