What are the revenue drivers for the company and future outlook?
NTPC is India’s largest power generation company with a total installed capacity of ~73000 Mega Watt (MW) at the group level as of FY23. It has 17% of total installed capacity in India with 25% generation share.
India has low per capita consumption of electricity which is expected to rise to 3,000 kilo Watt hour (kWh) by 2040. Electricity requirement in India is expected to grow in tandem with GDP growth. Both peak load demand and energy requirement are expected to rise at a healthy pace. NTPC’s vision is to become a 130 Giga Watt+ company by 2032 (currently 73 GW) of which 60 GW would be contributed by renewable energy.
Can the company continue to maintain its margin profile?
NTPC's revenue and profit are controlled through a regulated system that considers invested capital, a predetermined rate of return, and incentives, all within a transparent cost-plus model. In India, regulatory bodies like the Central Electricity Regulatory Commission (CERC) establish a defined rate of return on equity (ROE) that NTPC can achieve. This ROE is expressed as a percentage and signifies the profit or return on investment that shareholders can anticipate from their equity investment in NTPC. The regulated tariff model provides assurance that NTPC will consistently earn a predetermined fixed ROE.
What is the Capex plan ahead?
In order to achieve its vision of surpassing 130 GW of capacity by 2032, the company has laid out a capital expenditure (capex) plan amounting to approximately Rs. 3 lakh crore over the next 7 years. Within upcoming 3 years, NTPC aims to add its conventional capacity (coal) by 10 GW, involving an estimated capex of around Rs 80,000 crore. Furthermore, the company has strategic plans to expand its renewable capacity by 16 GW, with an estimated capex ranging from Rs. 85,000 to Rs. 90,000 crore.
What is the key catalyst?
NTPC has embarked on an ambitious plan to significantly increase its renewable capacity, aiming to add 16 GW between FY24 and FY26 and a total of 60 GW by 2032. Additionally, the company is actively strategizing for an IPO for NTPC Green Energy Limited, a move expected to unlock additional value for its shareholders. These developments have the potential to positively impact the stock's perception and could lead to treating.
What are the concern areas?
Any slowdown in the demand for electricity on account of lower economic activity can adversely impact company’s profitability. The Central Electricity Regulatory Commission (CERC) is expected to issue its Multi-Year Tariff (MYT) order for the upcoming five years. Any reduction in the regulated Return on Equity (ROE) or the inclusion of unfavourable provisions in this order could negatively impact the profitability of the company's regulated portfolio.
The key rerating of the company’s stock primarily relies on the speed and effectiveness with which the company can carry out its renewable capacity expansion program. Any delays in this initiative would not only affect the company's growth objectives but also have repercussions on its profitability and overall market valuations.