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The initial public offering (IPO) of NTPC Green Energy, a subsidiary of the prominent Indian energy giant NTPC Limited, commenced its bidding process on November 19th, 2024. The IPO, aiming to raise ₹10,000 crore through the sale of 92,59,25,926 equity shares, priced between ₹102 and ₹108 per share, received a relatively muted response on its first day. While retail investors and existing NTPC shareholders displayed some interest, participation from other investor segments remained underwhelming. By 1.00 pm on the first day, only 21% of the shares offered had been subscribed. This initial lackluster response contrasts with the pre-IPO grey market premium, which had been significantly higher before the official price band was announced. The substantial drop in the grey market premium to a mere ₹0.7-1 reflects investor hesitancy and concerns about the IPO's valuation.
A key factor contributing to the subdued response is the skepticism surrounding the company's valuation. Several analysts, including Divyam Mour at SAMCO Securities, have expressed concerns about the company's overvaluation when compared to its peers. This assessment is primarily based on the company's price-to-earnings (P/E) ratio, which suggests that the shares are priced higher than their intrinsic value, potentially limiting the potential for significant long-term returns. Furthermore, the company's relatively lower capacity utilization factor (CUF) for its solar and wind projects compared to competitors adds to the concerns about its operational efficiency and profitability. A lower CUF implies that the company's renewable energy assets are not generating electricity as efficiently as those of its competitors, which could negatively impact future earnings.
Despite these concerns, some brokerage firms maintain a positive long-term outlook for NTPC Green Energy, citing the company's strong parentage (NTPC Limited), the growing demand for renewable energy in India, and the company's long-term power purchase agreements (PPAs). These factors suggest a stable revenue stream and a potential for future growth. However, the reliance on PPAs also presents a risk, as changes in government regulations or policies could impact the company's financial stability. Nirmal Bang Institutional Equities, while acknowledging the company's operational efficiency and project pipeline, also highlighted the relatively lower return on equity (ROE) compared to peers and the high valuation multiples as reasons for assigning a 'neutral' rating to the IPO.
The allocation of shares during the IPO is noteworthy. A significant portion (75%) was reserved for qualified institutional bidders (QIBs), with non-institutional investors (NIIs) receiving 15% and retail investors receiving only 10%. The preferential allotment of shares to anchor investors, worth ₹3,960 crore at ₹108 per share, before the public offering commenced, highlights the substantial interest from institutional investors. Despite this, the subdued response from the general public and non-institutional investors on the first day suggests a certain level of apprehension amongst a broader investor base. The financial performance of NTPC Green Energy, as reported in its latest quarterly and annual results, reveals a profitable yet possibly less impressive outlook compared to investor expectations. The financial performance, while positive, might not justify the valuation priced into the IPO.
The IPO's success will depend on several factors, including the final subscription levels, the overall market sentiment, and the company's ability to deliver on its growth projections. The final days of bidding will be crucial in determining the overall success of the IPO. The listing of the shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) on November 27th, 2024 will provide a clearer picture of investor confidence. The difference between the grey market premium before and after the IPO launch underscores the importance of due diligence and thorough analysis before investing in any IPO. The relatively low subscription levels on the first day serve as a cautionary tale, highlighting the risks involved in investing in seemingly promising ventures without careful consideration of the valuation and underlying business fundamentals.
In conclusion, the NTPC Green Energy IPO presents a mixed bag. While the strong parentage and growth potential in the renewable energy sector are attractive, concerns regarding valuation and operational efficiency remain. The muted response on the first day of bidding, coupled with the significant drop in grey market premium, underscores the need for cautious optimism. Potential investors should carefully evaluate the risks and rewards before making an investment decision. The final subscription figures and the post-listing performance of the shares will offer a more definitive assessment of the IPO's success. The allocation strategy, heavily weighted towards institutional investors, further emphasizes the importance of understanding the complexities of the market dynamics and the potential volatility associated with IPO investments in general. Investors would benefit from consulting independent financial advisors to make informed investment decisions suitable to their individual circumstances and risk tolerances.
Source: NTPC Green Energy IPO: Day 1 bidding, GMP & Samco's 2 reasons to skip the issue