NTPC - Committed on the renewable energy front - ICICI Securities

With a lofty target of 32GW of renewable energy (RE) capacity by FY32, NTPC's RE strategy is beginning to take shape. Its recent SECI bid win affirms its competitiveness among global and domestic peers. We believe NTPC's key strengths in its RE transition includes (but not limited to): strong balance sheet, comparatively low cost of debt, experience in RE projects aiding shape cost-reduction strategies, and its relationship with states helping ease the land acquisition (through UMREPP)/PPA hurdles. In fact, NTPC is looking to set up non-PPA RE capacities as well, and planning innovative usage of the power generated post commissioning. Company aims to maintain its RE projects' IRR at similar levels to thermal. Maintain BUY.

- Will remain a major competitor in the RE space: NTPC intends to continue to increase its RE portfolio at 2-3GW p.a. in the next decade in order to reach its target of 32GW by FY32. Currently, its owned operational RE capacity is 1,070MW while 2,404MW is under construction and 2,088MW is under various stages of tendering. Through developer mode, 3,983MW has been commissioned, 1,400MW is under construction and 1,170MW is under various stages of tendering. To achieve its lofty target, NTPC intends to leverage: 1) the strength of its balance sheet; 2) its ability to raise capital at substantially lower rates (it recently raised 91-day CP @ 2.9%); 3) its robust team with significant project experience; 4) project cost optimisation through bulk module procurement, package-based breakup of EPC tenders, and land procurement through UMREPPs among others; 5) tax benefits by undertaking most RE projects through the new subsidiary NTPC RE; and 6) setting up non-PPA projects. NTPC is not interested in manufacturing, having already evaluated the option some time back.

- Company looking at various routes: For the 32GW target, several routes are being considered: 1) participating in SECI and state tenders; 2) setting up capacity in UMREPPs [5GW in Gujarat is in final stages; discussion is on with other states including Maharashtra (2.5GW), Rajasthan (10GW) and Andhra Pradesh (5GW)]; 3) non-PPA projects, where NTPC will set up RE capacities regardless of PPAs being in place. In the case of non-PPA projects, the post-commissioning plan is to: i) blend with thermal/hybrid power; ii) substitute thermal power (alleviating high variable cost concerns of recently commissioned non-pithead plants); iii) sell through exchanges and/or tie up PPAs with discoms; and 4) inorganic expansion through acquisitions.

- Recent SECI win sets standards: NTPC's bid win for development of 470MW at Rs2.01/unit sets new standards. As per our estimates, cost/MW for this project should range at Rs40mn-42mn and IRR at 12-14%. Apart from timely CoD, NTPC does not expect any major risks [including risks related to module procurement/pricing, receivables (SECI is the intermediary and offtake is guaranteed from Rajasthan), land acquisition and evacuation (transmission lines are under construction)].

- Maintain BUY: We believe NTPC is on course to achieve our FY21E target EPS of Rs12.3/Rs14. Maintain BUY with an unchanged target price of Rs165/share.

Shares of NTPC LTD. was last trading in BSE at Rs.98.55 as compared to the previous close of Rs. 98.65. The total number of shares traded during the day was 1486685 in over 7422 trades.

The stock hit an intraday high of Rs. 99.8 and intraday low of 97.5. The net turnover during the day was Rs. 146880664.

Source : Equity Bulls

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