Rerating on the cards for NTPC? Here is what analysts have to say

NTPC has been the talk of the town as reports surfaced that Malaysia’s Petronas may buy a stake in the thermal power generation company’s green energy arm. The stock is seen by analysts as a potential rerating candidate.

Petronas has offered Rs. 3,8oo crore ($460 million) to buy a 20 percent stake in NTPC Green Energy in the first deal of its kind by a state-owned Indian firm, Reuters reported on March 16.

The offer price was higher than the Rs 3,000 crore NTPC had been expecting when it asked for expressions of interest in NTPC Green Energy last year and was 78 percent above the second-highest bidder, REC. It values NTPC Green Energy at $2.3 billion, the report said. REC had offered Rs. 15.47 per share.

Jefferies sees NTPC as a rerating candidate because it believes the company to be an underpriced beneficiary of an estimated 82 percent rise in India’s renewable energy capacity by FY 26-27 and 2.8 times by FY30.

“We believe re-rating drivers of operational efficiency improvements, capacity additions and right ESG noises are in place for NTPC,” the financial services company said. ESG is short for Environmental, Social and Governance.

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NTPC plans to utilise the proceeds of the stake sale to expand its non-fossil businesses.

NTPC’s focus is on renewable energy with clear visibility on 9 GW (including projects at award stages) of the planned 60 GW target by 2032, Jefferies pointed out. Renewable energy capacity is approximately 6 percent of its FY 24 overall capacity estimate.

NTPC is building its energy portfolio by adding significant capacities of renewable energy. NTPC’s plan to generate 60 GW of renewable energy capacity means it would make up for nearly 45 percent of overall power generation capacity by 2032.

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Efforts to diversify away from fossil fuels have been the priority for NTPC over the past couple of years, as the thermal power generator laid out the target of reaching 60 GW of green capacity out of a total 130 GW by 2032, ICICI Direct Research said.

The sale of a 20 percent stake in the green energy arm has reaffirmed NTPC’s commitment to aggressively grow its green portfolio in times to come, it added.

From an NTPC shareholder perspective, the per-share value on account of monetisation will be Rs 15.7 per share. “With strong focus on alternative green energy spectrum, we believe NTPC may be in for a rerating,” ICICI Direct Research added.

Jefferies has maintained its “buy” rating on the stock with a target price of Rs 195, which means 1.2 times the price-to book value as of September FY24.

Shares of NTPC settled at Rs 177.35, down 1.3 percent, on the BSE.