Key Highlights from NTPC Green Energy's ₹10,000 Crore IPO Draft Prospectus

NTPC Green Energy, the renewable energy arm of the Maharatna company NTPC, has filed its Draft Red Herring Prospectus (DRHP) with SEBI to raise ₹10,000 crore through an initial public offering (IPO). The prospectus outlines key details about the company's financials, strategies, and potential risks, offering a closer look into what investors can expect from this major public sector undertaking's offering. Here's a breakdown of the most important points from the DRHP.

One of the critical aspects highlighted in the DRHP is NTPC Green Energy’s significant reliance on a few large customers, which accounted for around 70% of its revenue in fiscal 2024. The company also emphasizes the challenges it faces due to its dependency on third-party suppliers for critical renewable energy components such as solar modules, wind turbines, and battery energy storage systems. While the company has not entered into long-term agreements with its material suppliers, it generally sources these components based on prevailing market conditions, which could pose risks in terms of cost volatility and supply chain disruptions.

NTPC Green Energy's current projects are largely concentrated in Rajasthan, which exposes the company to geographical risks such as political, economic, or seasonal disruptions. Given that a large portion of their revenue is tied to Power Purchase Agreements (PPAs), any changes in tariff regulations or delays in project execution could negatively impact their revenue. Additionally, the profitability of the company is dependent on the overall health of the renewable energy market, which is subject to regulatory changes and intense competition from both domestic and international players.

One of the more pressing risks outlined in the DRHP involves the potential delays or increased costs caused by factors such as climate conditions, land availability, and labor issues in the project regions. The development of new projects, particularly in areas like solar energy and energy storage systems, involves high levels of capital investment and operational risk. NTPC Green Energy must also deal with import restrictions on essential components such as solar equipment and wind turbines, which could further affect their project timelines and budgets.

The DRHP also sheds light on NTPC Green Energy’s plans to diversify its renewable energy portfolio. The company intends to expand its assets beyond solar and wind projects into new areas such as green hydrogen and energy storage systems. However, these efforts will require substantial capital investment, which could increase the company’s overall financial exposure. The prospectus notes that the company currently has ₹1,277 crore in outstanding debt, and any inability to comply with repayment terms could significantly affect its financial position.

Another key risk involves the company’s reliance on adequate capital to support the development of new business opportunities, including green hydrogen initiatives. While the company has been making strides in renewable energy, the availability of land, labor, and equipment may pose challenges to the timely execution of new projects. Delays in the delivery of critical components, caused by either local or international suppliers, could further affect the company’s ability to meet its operational goals.

NTPC Green Energy has also indicated that the electricity generated from renewable sources is highly dependent on climate conditions, particularly in regions where the company has its major operations. Adverse weather conditions could reduce the efficiency of solar and wind power generation, impacting overall project performance and profitability.

In its pursuit of diversification, NTPC Green Energy plans to explore new commercial areas like energy storage systems and green hydrogen technologies, which could present both opportunities and risks. While these innovations have the potential to significantly expand the company’s renewable energy capacity, they also come with a high degree of technical and commercial uncertainty.

The IPO will consist entirely of fresh equity shares, with no existing shareholders offloading their stakes. The funds raised from the IPO will primarily be used to repay or prepay outstanding loans of the company’s subsidiary, NTPC Renewable Energy Ltd (NREL), and for other general corporate purposes.

Reference: CNBC-TV18