The profits of state-owned thermal power producer NTPC is expected to go up by Rs 300-400 crore after the acquisition of hydropower majors Neepco and THDCIL, analysts said.

NTPC is expected to acquire the two companies for Rs 10,000 crore after necessary adjustments such as debt and other charges, sources said.

The cabinet committee on economic affairs (CCEA) has approved the finance ministry’s proposal to divest the central government’s stake in THDCIL and Neepco.

The government will divest its 74.23 per cent stake in THDCIL and 100 per cent shareholdimg in Neepco along with the transfer of management control to NTPC.

Analysts from Motilal Oswal in a note said 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.

On how NTPC will foot the bill, the report suggests that there might be a green bond issue for around Rs 10,000 crore. Green bonds are debt instruments used to raise funds for eco-friendly projects and the acquisition of hydropower (renewable sector) firms can make NTPC eligibile to float for such an issue.

“A higher debt funded acquisition would be more value accretive for NTPC given it has access to low-cost debt,” a JM Financial report observed, adding that both the acquisitions would be earnings accretive for NTPC at a fair value.

“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 said.

According to the company’s annual report, Neepco’s net worth as on March 31, 2019, was Rs 6,301.29 crore. The net worth of THDCIL was Rs 9,280.78 crore as on March 31, 2019.

THDCIL has a long-term borrowing of Rs 2,415 crore and a short-term borrowing of Rs 647 crore. Neepco has a long-term borrowing of Rs 6,309 crore and short-term borrowing of Rs 200 crore.