The Initial Public Offering (IPO) of NTPC Green Energy Ltd (NGEL) is set to open on November 19. SBI Securities in its latest report says, given the company's robust growth potential, analysts recommend subscribing to the IPO at the cut-off price for long-term gains.

“We recommend investors to subscribe to the issue at cut-off price for long term,” said the report. However, it cautioned that NGEL depends on imported solar panels and other components without long-term contracts, making it vulnerable to supply chain disruptions. Timely execution of its contracted projects will be a challenge for the company that could impact its financial performance.

"The company is substantially dependent on the availability and cost of solar modules, solar cells, wind turbine generators and other materials, components and equipment for its solar, wind and other projects. The company purchases major components such as solar panels, inverters, wind turbines and some components of power evacuation systems directly from a number of domestic and international manufacturers and does not have any long term supply contracts with them," said the report.

Investors should also consider risks like a large portion of NGEL's operational projects (62.2 per cent) is concentrated in Rajasthan, exposing it to regional risks. The company relies heavily on a limited number of power purchasers, which accounted for over 97 per cent of its revenue in recent years.

"The company is dependent for winning competitive bids for renewable energy projects which require extensive research, planning, due diligence and capacity to operate with low operating margins for a sustained period of time. Future growth of the company is significantly dependent on successful execution of contracted and awarded projects. Any cost-overruns or failure to successfully execute projects may adversely impact business, results of operations and financial condition of the company.

"NGEL, a wholly owned subsidiary of NTPC Ltd, is the largest renewable energy public sector enterprise (excluding hydro energy) in terms of operating capacity as of September 2024.

As of September 2024, the company's operational capacity was 3,220 MW of solar and 100 MW of wind projects. Additionally, it has 13,576 MW of contracted and awarded projects, along with 9,175 MW in the pipeline. The company aims to scale its operational capacity to 19 GW by FY27, reflecting its ambitious growth plans.

NTPC Ltd, a 'Maharatna' central public sector enterprise, contributes 24 per cent of India's total power generation and has committed to increasing its renewable energy capacity to 60 GW by 2032. NGEL is poised to play a significant role in achieving this goal.

NGEL's projects are geographically diversified, with operations in states like Rajasthan, Gujarat, Tamil Nadu, and Uttar Pradesh.

This broad footprint reduces risks related to location-specific generation variability. Additionally, the company's extensive experience in renewable project development and execution, supported by NTPC's expertise, strengthens its position in the market. NGEL owns 8,900 acres of freehold land and 45,700 acres of leasehold land, ensuring a solid foundation for future projects.

The company enjoys access to low-cost capital due to its strong parentage and operational efficiencies. This is crucial in maintaining profitability in capital-intensive renewable energy projects. Moreover, NGEL's focus on green hydrogen, green chemicals, and battery energy storage systems aligns with India's sustainability goals, promising significant growth in the coming years.

At the upper price band of ₹108 per share, NGEL is valued at FY24 EV/EBITDA of 53.4x. Given the company's robust growth potential, analysts recommend subscribing to the IPO at the cut-off price for long-term gains.

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