NTPC has set an ambitious target of increasing its operational renewable energy capacity to 60GW by 2032
Shares of NTPC Ltd rose nearly 4% on Monday on the National Stock Exchange. Not without reason. The company’s March quarter results (Q4FY21) announced on Saturday are strong, helped by the recovery in power demand and higher other income.
In fact, NTPC’s results stand out, point out analysts. “NTPC reported its best ever quarterly performance in 4QFY21 with 13% year-on-year growth in adjusted profit after tax (PAT) to ₹3,830 crore leading to an all-time high adjusted PAT of ₹14,220 crore (+17% year-on-year) in FY2021," said analysts from Kotak Institutional Equities. Further, as on March 2021, total receivables stood at ₹12,800 crore, lower than ₹14,200 crore as on March 2020.
It is also interesting that NTPC has given an ambitious target on the renewable energy (RE) capacity additions front.
By 2032, NTPC is looking to increase its 1.3GW (gigawatt) of FY21 operational renewable energy capacity to 60GW, which is higher than the 30GW planned earlier. This is encouraging given that it could help the company improve its ESG (environmental, social and governance) scores. NTPC’s higher exposure to coal-based capacities has been a key issue on ESG metrics, said analysts. Further, it would also add to NTPC’s earnings growth in future and help diversify its revenue streams.
Even so, investors would do well to watch the return profile of the RE capacities. “The company reiterates that the competitive edge in RE space comes at a lower borrowing cost. At about 6.5% borrowing cost, the equity IRR for solar arm will compete strongly with other CPSEs such as Coal India Ltd, for instance," pointed out a report by Antique Stock Broking Ltd on 21 June. CPSEs is short for central public sector enterprises.
As such, the road ahead is not a smooth one. As Kotak analysts point out, “While lower cost of borrowing weighs in favour of NTPC, increased competition in the renewable space pushing solar bids to an all-time low keeps us watchful of the return profile of upcoming capacity addition."
Meanwhile, NTPC has declared a final dividend of ₹3.15 per share, taking the total dividend for FY21 to ₹6.15 apiece. “With improving regulated equity, there is a case for a 5%+ dividend yield," said Antique.