Analysts Advise Selling NTPC Stocks as Growth Expectations Soar

Big news in the stock market today as Kotak Institutional Equities has come out with a ‘Sell’ recommendation for NTPC Ltd. They’re saying that the current stock price fully reflects the company’s ambitious growth plans, leaving little room for any mistakes along the way.

These analysts pointed out that NTPC shares have actually shot up by 27% this year alone and are up a whopping 80% over the past year! However, they raised concerns that the company’s current valuation seems to ignore potential risks associated with its renewable energy projects.

NTPC is trying to expand its renewable energy footprint significantly, eyeing a total of 20 GW by the fiscal year 2026 and an impressive 60 GW by 2032, up from their current capacity of just 3.6 GW. They’ve also got another 9.2 GW under construction.

On top of this, NTPC is gearing up to release tenders for an additional 15 GW of thermal capacity over the next couple of years, building on the 9.6 GW that’s already in the works and expected to start operating by FY2030.

Kotak noted that during a recent interaction, NTPC’s management avoided diving deep into discussions about their renewable sector plans, hinting that more information will come as they prepare for a potential IPO of that segment soon.

When it comes to funding, NTPC is looking at a massive capital investment, projecting Rs 80,000 crore for 10 GW of traditional energy and Rs 85,000-90,000 crore for developing 16 GW of renewable energy. They also plan to put aside Rs 30,000 crore to install pollution control tech in their existing plants.

According to Kotak’s analysis, they are valuing NTPC differently based on its operations: 1.5 times for its regulated businesses and 1.2 times for its renewable ventures. This has led them to adjust their target price (fair value) for NTPC shares to Rs 290, up from Rs 275.

In an interesting twist, NTPC is also stepping into the nuclear energy sector, having entered a joint venture with the Nuclear Power Corporation of India. They’re looking at a project that will have an estimated investment of Rs 47,600 crore, which is based on updated costs.

The management has shared that building a nuclear power plant generally takes around 8-10 years, and they expect work on their facility in Rajasthan to kick off in just a few months.

The projected tariffs for nuclear power are also looking at Rs 7 per unit, factoring in the fuel costs. Kotak’s analysts comment that the current valuation of 2x price-to-book and 16.4x price-to-earnings ratios seem to reflect the company’s growth ambitions quite well.