NTPC Green Energy Valuations Too High: Why Kotak Advises Selling NTPC Stock
NTPC Green Energy Shares Trade at Pricey Valuation vs Adani Green; Kotak Recommends Selling NTPC Stock NTPC Green Energy, the renewable energy arm of state-run NTPC Ltd, recently made headlines with its listing on the stock exchange, and the market has been closely watching its performance. Though it’s looking to achieve ambitious goals-in terms of ramping up operational capacity from 3.3 GW to over 26 GW in the medium term, analysts are not giving much credit to this idea given that its valuation is still far from rivals Adani Green and Renew Power. Kotak Institutional Equities, however, has turned bearish on NTPC. It has given a ‘sell’ rating with a revised fair value of Rs 310, citing the stock to be overvalued.
NTPC Green's Valuations
NTPC Green currently trades at a premium as compared to its peers in the renewable energy space. According to Kotak, the stock trades at an EV/EBITDA multiple of 16 times and a P/B of 5 times on FY2028 estimates. It represents a 55% CAGR in EBITDA over FY2024-2028 when the current portfolio of 17 GW projects will fully contribute to earnings. The valuation is, however, more than that of the comparable companies Adani Green and Renew Power, which are going to make investors wary. stability. The Relative Strength Index (RSI) is at 45.31, so it is neither overbought nor oversold but is more towards the neutral zone. In technical analysis, if the RSI is below 30, then it is said to be oversold and above 70 is overbought.
On the other hand, NTPC Ltd, which still owns 90% of NTPC Green, trades at a much lower multiple—1.8 times P/BV and 9.4X EV/EBITDA on FY2026E. Kotak believes that NTPC Green’s rich valuations do not adequately account for the significant challenges the company faces in terms of execution, financing, and competition.
The Challenges Facing:
NTPC Green Energy NTPC Green has ambitiously targeted the long-term goal of 60 GW of renewable energy capacity. However, reaching this will not be without its set of obstacles. According to Kotak, here are three areas of challenges that can impact performance:
Modest Returns on Existing and Under-Construction Capacity Although the company has a large portfolio of projects in its pipeline, it generates modest returns from its existing and under-construction capacity, which could somewhat offset profitability in the near term.
Slow Addition of Capacity: NTPC Green has added just 0.7 GW in the last 18 months. This is still well short of its target to add 15-16 GW between FY2025-27. The stock might face some pressure on the growth of its future profits.
Constrained Funding: Being an entity listed independently, NTPC Green will not anymore avail the support of the NTPC Ltd in its endeavor to raise incremental equity. According to Kotak, this will limit the company from meeting the aggressive capacity expansions set by the company. More over, 4.5 GW of contracted/awarded capacities are pending PPAs which may lead to the delay in execution. Hybrid or flexible dispatch renewable energy projects have gained a better response from distribution utilities since these projects better fit into the demand curve compared to the solar power that normally has the peak generation in mid-day hours. This also would create additional complexity in achieving PPAs for NTPC Green’s solar projects.
Outlook for NTPC:
Green and NTPC Ltd The target to reach 60 GW from NTPC Green looks quite aggressive, but according to Kotak, the current valuation does not adequately capture the risk of execution in such an endeavour. The firm will meet its targets mainly because of how fast it manages to accelerate its capacity additions and signs up PPAs on its projects. Given these challenges, Kotak has downgraded the stock, advising investors to consider selling NTPC shares with a revised fair value of Rs 310. For NTPC Ltd, the demerger of NTPC Green would imply a change in the cash generation strategy. Even though NTPC would continue to generate cash from its coal business, the inability to access NTPC Green’s incremental equity requirements may limit its ability to grow into the renewable energy space.
Caution for NTPC Investors:
NTPC Green’s current valuation may be too optimistic given the challenges it faces, both in terms of execution and funding. While the renewable energy sector holds significant long-term potential, NTPC Green’s lofty targets, slow pace of capacity addition, and funding constraints suggest that its stock may be overvalued at present levels. As such, Kotak’s ‘sell’ recommendation on NTPC stock could be prudent for investors looking to manage risk in the current market environment. Investors should carefully consider these factors before making any decisions regarding their holdings in NTPC or NTPC Green Energy, as the stock could experience volatility in the short term.
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