The IPO valuation looks aggressive since the company is approaching the primary market in the initial stage of operations where capital expenditure (capex) is higher to build capacities while the benefit in terms of higher cash flows and profit will flow in subsequent years. Given these factors, the issue looks more suitable for long-term investors with a high risk appetite.
Business
The company was carved out from NTPC in April 2022. As of September, the company’s portfolio consisted of 3.3 gigawatts (GW) of operating projects across six states and 13.6 GW of contracted and awarded projects in solar and wind energy. This has improved from 1.5 GW of operating capacity and 4.8 GW of awarded projects in FY22 based on the carved out data from the parent NTPC. The company has 9.2 GW of capacity in the pipeline as of September 2024. NGEL has 17 offtakers with whom it has either signed pre-purchase agreement or received a letter of acceptance (LoA) across 41 solar projects and 11 wind projects. Given a strong parentage, it enjoys the highest AAA credit rating which allows the company to raise debt at interest rates which are 150-200 basis points lower than peers.
Financials
Between FY22 (carved out data) and FY24, revenue and operating profit before depreciation and amortisation (EBITDA) doubled to Rs 1,962.6 crore and Rs 1,746.4 crore respectively, implying an EBITDA margin of 89%. The largest peer Adani Green Energy operated at 82% margin in FY24. NGEL’s net profit more than tripled to Rs Rs 344.7 crore in FY24 from Rs 94.7 crore in FY22. Net debt-equity ratio was two in FY24 while interest coverage was 2.6 in FY24. For Adani Green, net debt-equity ratio was 5.5 while interest coverage was 1.7 in FY24.Valuation
Being in the growth phase with intensive capex at present, NGEL’s demanded valuation looks skewed. The price-earnings multiple (P/E) after annualising the profit in the first six months of FY25 is 260 compared with 100 for Adani Green. The enterprise value (EV) relative to EBITDA works out to be 52 for NGEL and 32 for Adani Green.