As per reports, there is a potential deal between Malaysia’s Petronas and NTPC’s RE arm. Petronas is said to be offering $460 mn for a 20% stake in NTPC’s RE arm. At the end of the Q3 of FY2022-23, the company had commissioned approximately 2.9 GW of RE capacity and had 4.7 GW under construction. This represents around 6% of the company’s estimated overall capacity for the FY2023-24. The speculated deal would imply a price of approximatelyRs 12.5 per share for NTPC shareholders after a 20% holdco discount, compared to the current market capitalisation of aroundRs 10.8 per share. This would represent value accretion of approx.Rs 1.7 per share.
Focus on RE remains a top priority. Also there is clear visibility on 9 GW of the planned 60 GW target by 2032, including projects that are in the award stages.
The mgmtvhas mentioned that 24 GW of ultra mega RE park is under various stages and includes 10 GW of Rajasthan. Interest costs are a key differentiating factor that could help NTPC achieve the same equity IRR (internal rate of return) as its competitors, even if it bids at tariffs that are 10-15% lower. We highlighted in ‘India Power: Decade of growth ahead’, dated 18 July 2022, that NTPC is an underpriced beneficiary of our estimated 82% rise in India’s RE capacity by FY26E-27E and 2.8x by FY30E. We believe re-rating drivers of operational efficiency improvements, capacity additions and right ESG noises are in place for NTPC. Risks—coal supply shortage impacting PAF and earnings; and meaningful delay in RE execution.