Investors’ love for Adani Green stock makes NTPC investors green with envy

Adani Green Energy Ltd hit a new 52-week high on Wednesday exceeding ₹1 lakh crore market capitalization. NTPC Ltd, with 19 times the operating asset base and much higher revenue, is valued at less than ₹90,000 crore.

Similar to Adani Green, NTPC also has a huge capacity addition pipeline providing growth visibility. The only difference being Adani Green is a pure play renewable energy firm, while NTPC is largely a conventional electricity producer.

Even so, analysts are at pains to explain Adani Green’s valuation. “If I have to use the discounted cash flow valuation method the value of the stock would be less than half of the current market price (of ₹677),” says an analyst on condition of anonymity.

NTPC has been reporting profits while Adani Green reported loss in the last two fiscal years. In the quarter ending June Adani Green reported a profit after tax of ₹22 crore. NTPC’s net earnings stood at ₹2,470 crore in thlast quarter.

Adani Green has 2,595 megawatt (MW) of operating power assets. It plans to add 11,395 MW more. Of this, 3,400 MW are in different stages of construction and are set to be commissioned in 2020 and 2021. Commissioning of the 8,000 MW manufacturing linked solar project is set to happen over FY22-FY25.

That can constructively scale-up Adani Green’s asset base to 6,000 MW in another year or so. That pegs the total cost at ₹30,000 crore, considering the solar project cost at ₹5 crore per MW. This is out of sync with the ₹1 lakh crore valuation market is ascribing. “Generally product companies get such kind of valuation multiples,” says the analyst cited above.

To Adani Green’s credit, it is capturing emerging opportunities rather well. Its capacity base grew 3.4 times in three years and is comfortably managing funds for capital expenditure. The ₹3,707 crore proceeds from the sale of stake in 2,148MW of operating projects to TOTAL SA will free up Adani Green’s equity investment and aid future capex. Further the company is refinancing debt at lower interest rates and elongating the maturity profiles.

“Adani Green Energy’s operational portfolio got commissioned over FY16-FY20, while the under-construction portfolio will be commissioned overFY21-FY26, leaving open key risks related to construction and funding. However,India-Ratings takes comfort from the company’s track record in successfully completing assets in the estimated time and cost and the quality of the assets,ensuring anticipated operational and financial performance post commissioning,”India Ratings and Research Pvt Ltd said in a note in July.