NTPC triggers plan to monetize holdings in NGEL

In the last few quarters, a new trend has emerged in the power sector in India. When it comes to valuations, the market cap of power companies appears to be gravitating towards companies that have a larger share of the renewable energy franchise. Both NTPC and Tata Power saw a much better valuation in the market once they underlined their standing in the renewable energy space. More importantly, their valuations got a boost when renewable energy became the driver of future growth in power capacity. That is something NTPC has been trying to establish through its subsidiary, NTPC Green Energy Ltd (NGEL).

Now NTCP may be looking at the first attempts to partially monetize its renewable energy properties hidden in its subsidiary companies. NTPC has begun the hunt for investors to raise capital for its subsidiary NTPC Green Energy Ltd (NGEL). It may be recollected that the National Thermal Power Corporation (NTPC) has for long been the primary and premier power generator for India. However, its power generation continues to be largely thermal power (coal fired power). In order its actual value and worth in the market, NTPC is looking to get investors to the equity of NTPC Green Energy Ltd as early as by March 2023. 

It is now clear who that strategic investor in NTPC Green Energy Ltd (NGEL) would be. It could either be a strategic investor in the power space, or a PE Fund or even a sovereign fund. Typically, NTPC is likely to prefer a PE Fund or a Sovereign Fund that come in as a financial investor with an investment infusion of up to Rs3,000 crore to begin with. That would be a good place to start and would give a good idea of the valuation of the renewable entity standalone and also the overall worth of NTPC due to its interests in the renewable energy subsidiary. It remains to be seen if all this can be completed by March 2023.

There has already been adequate interest from the investment space for a stake in NTPC Green Energy Ltd (NGEL). A slew of pension funds, equity investors and big power outfits have already evinced their interest to invest in NTPC Green Energy Ltd. NTPC has set aggressive targets for the renewable business after all. As per the current plans laid out by the company, it plans to position itself in the forefront of the government effort to shift from traditional sources of electricity to more modern and renewable sources. Being a signatory to the Paris Accord and COP 20 resolutions, this shift has to be led by the PSUs.

In terms of specific numbers with reference to NTPC, the plan is to have as much as 60 GW capacity through RE (Renewable Energy) sources by the year 2032. That would translate into around 45% of the total power capacity of 133 MW that NTPC is planning to have installed and ready by the year 2032. However, this level of expansion will come at a fairly huge cost and it is estimated that nearly Rs250,000 crore of fresh infusion will be required to achieve these kinds of targets. For that to happen, NTPC Green Energy Ltd (NGEL) must be able to come out with an IPO of its own accord. As a first step and to test valuation theories in the market, NTPC will look at a tentative valuation exercise through stake sale by March 2023.

The company and the government in its last meeting have already discussed and agreed that NTPC must drive the pro renewable energy mix for the Indian market. For instance, as of date, NTPC has a commissioned renewable energy capacity of 2,332 MW. If you also add up the power generation capacity across all sources, i.e. including fossil-fuel based power of the NTPC Group as well as the capacity of its joint ventures and subsidiaries, it stands at 70,254 MW, or 70 GW. The government has already set a target to increase this capacity to 133 GW for NTPC by the year 2032, predominantly via renewable energy sources. 

By the year 2030, the government has already set a target of having 500 GW of power generation capacity from clean and renewable sources like solar, wind and hydro plants. This will go a long way in reducing the carbon footprint of the Indian companies and of the Indian economy. The government has a priority of making NTPC and NGEL increase their capacity in sync with the growing power demand in the country. NTPC must not only grow but also target a larger market share in India. For that to happen, NGEL has to be monetized first. The valuation story could be interesting.