The IPO valuation looks aggressive as the company is approaching the primary market in the early stages of operations where capital expenditure (capex) is high to build capacity while benefits in terms of cash flows and profits will flow over the coming years. Given these factors, the issue seems more suitable for long-term investors with high risk appetite.
Business
The company was carved out of NTPC in April 2022. As of September, the company’s portfolio includes 3.3 gigawatts (GW) of operating projects in six states and 13.6 GW of contracted and projects in solar and wind power. It improved from 1.5 GW of operating capacity and 4.8 GW of awarded projects in FY22 based on data carved out by parent NTPC. The company has 9.2 GW of capacity in the pipeline by September 2024. NGEL has 17 offtakers with whom it has signed pre-purchase agreements or obtained letter of acceptance (LoA) in 41 solar projects and 11 wind projects. Given the strong parentage, it enjoys the highest AAA credit rating that allows the company to raise debt at interest rates that are 150-200 basis points lower than peers.
Financial
Between FY22 (data carved) and FY24, earnings before depreciation and amortization (EBITDA) stood at Rs. 1,962.6 crore and Rs. 1,746.4 crore doubled, representing an EBITDA margin of 89%. Largest peer Adani Green Energy operated at 82% margin in FY24. NGEL’s net profit in FY22 was Rs. 94.7 crore in FY24 tripled to Rs. 344.7 crores. Net debt-equity ratio was two in FY24 while interest coverage was 2.6 in FY24. Net debt-equity ratio for Adani Green was 5.5 while interest coverage was 1.7 in FY24.
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evaluation
Being currently in a growth phase with intensive capitalization, NGEL’s sought valuation seems unsustainable. The price-earnings multiple (P/E) after annualized profit in the first half of FY25 is 260 compared to 100 for Adani Green. Enterprise value (EV) relative to EBITDA is 52 for NGEL and 32 for Adani Green.
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