Thu Sep 19 13:09:35 UTC 2024: ## NTPC Green Energy IPO: Risk Factors to Consider Before Investing

**New Delhi:** NTPC Green Energy, a subsidiary of NTPC Limited, is set to launch its initial public offering (IPO) aiming to raise a whopping ₹10,000 crore. While the IPO, slated for May 2022, will be the largest by a public sector company after LIC’s ₹21,000 crore offering, potential investors should be aware of several risks associated with the company.

The company’s draft red herring prospectus (DRHP) reveals significant dependence on a small number of customers for revenue. Over 87% of NTPC Green Energy’s revenue in fiscal year 2024 came from its top five offtakers, with the largest contributing nearly 50%. Loss of any of these customers or deterioration in their financial health could severely impact the business.

Further, the company relies heavily on third-party suppliers for materials, components, and equipment, lacking any long-term contracts. While the DRHP states that the company may secure long-term agreements for crucial components like solar modules and wind turbine generators, the absence of such agreements currently poses a considerable risk.

Another concern is the concentration of NTPC Green Energy’s operating renewable energy projects in Rajasthan. Any significant social, political, economic, seasonal, or natural disaster in the state could disrupt the company’s operations.

The company also faces stiff competition from both traditional and renewable energy companies. Furthermore, the company’s reliance on power purchase agreements (PPAs) for revenue exposes it to risks associated with fixed tariffs, tariff regulations, and potential changes in structuring.

The DRHP highlights potential risks stemming from solar projects’ in-house procurement operations, potential default by component suppliers, and credit/performance risks associated with suppliers and contractors.

Importantly, NTPC Green Energy’s significant debt load poses a risk, as failure to meet repayment obligations under its financing agreements could negatively impact the business. As of June 30, 2024, the company had a total outstanding debt of ₹15,277 crore.

While the company aims to diversify its renewable energy project portfolio by entering new areas like green hydrogen, green chemicals, and energy storage systems, the development and commercialization of these new fields are complex, time-consuming, and costly, carrying substantial business risks.

Potential investors must carefully evaluate these risk factors before making an informed decision about investing in NTPC Green Energy’s IPO.

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