The Centre’s decision to sell its stakes in hydropower majors NEEPCO and THDC to state-run power giant NTPC Ltd may cost the latter between Rs 8,000-Rs 10,000 crore, but will likely add a couple of hundred crore rupees to its annual net profit. Analysts also note the acquisition will also go a long way in helping NTPC achieve its ambitious plans for renewable energy capacity addition.
NEEPCO and THDC have nearly 3 GW of operational capacity combined, of which 2.3 GW is from hydropower projects. Another 2 GW worth of projects are already in the construction phase and analysts note that this would help NTPC avoid some capital expenditure on renewable capacity creation.
"Acquisition of these new capacities (including under-construction) adds 5 GW (10 per cent of NTPC capacity) of mostly hydropower assets to its largely coal dominated asset base," wrote JM Financial’s Subhadip Mitra and Koundinya Nimmagadda in a report.
While they peg a fair value of around Rs 10,300 crore for the Centre’s 74.23 per cent stake in THDC and Rs 2,500-Rs 4,500 crore for its 100 per cent stake in NEEPCO, government sources say NTPC may offer between Rs 8,000-Rs 10,000 crore for the two companies accounting for debt and other liabilities.
However, NTPC is yet to begin the process to appoint a valuer for the transaction and the entire exercise is expected to take around two-three months time.
Analysts from Motilal Oswal note that while the uncertainty about the actual acquisition cost will remain an overhang on the stock, “a purchase price of Rs 8,000 crore will lead to around Rs 300-400 crore of PAT (net profit) accretion” for NTPC. As for how NTPC will foot the bill, reports note that there might be a green bond issue for around Rs 10,000 crore soon. Green bonds are debt instruments used to raise funds for eco-friendly projects and the acquisition of hydropower (renewable sector) firms can fall qualify for such an issue.
“A higher debt funded acquisition would be more value accretive for NTPC given it has access to low cost debt,” the JM Financial report observed, adding that both acquisitions would be earnings accretive for NTPC at fair value. “And, with NTPC’s strong balance sheet (FY19 net debt to equity ratio at 1.3) and annual profits of Rs 10,000-Rs 12,000 crore, these are easily funded from two-three years of internal accruals,” the analysts further said.