Ever since India’s independence in 1947, its state-owned companies have been
a powerful economic force. Despite successive governments advocating for privatisation and the parallel emergence of several large privately held conglomerates, these companies account
for over 20% of India’s GDP – a figure that is higher than it is for Mexico or Brazil.

13 of these state-owned companies
were christened “maharatna” or “great jewels” – a phrase that captures not only the nationalist zeal that surrounds them but also their stature in Indian industry. The maharatnas
include some of India’s largest fossil fuel companies such as Coal India, Indian Oil Corporation, Bharat Petroleum, Oil and Natural Gas Corporation (ONGC) and National Thermal Power Corporation (NTPC).

Several state-owned companies have established renewable energy subsidiaries in recent years. Soon, some of these subsidiaries will
trade on Indian stock markets – giving institutional investors an opportunity to cash in.

ONGC and NTPC – two of the largest maharatnas – have recently set up wholly-owned renewable energy companies. These green subsidiaries are making their bid as they enter the market. So, what does the investment case depend on?

Decarbonising the parents

ONGC listed its shares on India’s stock market back in 1995. Today, the company is 41% publicly owned. 58% of its equity is held by the government. In February 2024, the company announced the formation of a new subsidiary – ONGC Green.

According to its listing disclosures, ONGC’s subsidiary will target a wide range of renewable energy activities
ranging from bio-fuels and green hydrogen to carbon capture and storage.

The creation of a green subsidiary is set within a wider context of investor pressure over decarbonizing the parent company. Climate Action 100+, an investor coalition, began engagements with ONGC in 2020. In June 2024, ONGC published
a decarbonisation roadmap citing demand reduction for its core business. In it, the company identified several opportunities arising from India’s energy transition that it hopes to tap into. Most of these activities fall within ONGC Green’s core business proposition.

“We appreciate and welcome ONGC’s ongoing commitment to its climate goals and improved disclosures, especially given its position as a Public Sector Undertaking in an emerging economy on an advanced growth trajectory. We look forward to continuing our engagement with the company as it implements these plans and aligns its capital expenditure with these goals”, says SBI Funds Management, an Indian asset manager.

NTPC’s green subsidiary – NTPC Green Energy was incorporated in 2022. On September 18, 2024 the company filed
a Draft Red Herring Prospectus with SEBI – India’s securities regulator, signaling its intention to pursue an initial public offering.

The IPO of its green subsidiary, for NTPC too, comes in the context of a parent company looking to diversify its portfolio. Currently, renewable energy accounts for 43% of India’s installed capacity, led by 82 GW of rapidly proliferating solar energy capacity. By 2032, NTPC is targeting an installed capacity of 60 GW which would account for 45% of its power generation capacity.

“With the increased support of the Government and improved economics, the renewable energy sector has become attractive from an investor’s perspective”, NTPC Green Energy says in its filings.

The two companies have recently combined their pursuits of renewable energy. A joint venture in offshore wind was announced
in February 2024.

Precedent

There is some precedent to foreign financiers using the public equity channel to tap into India’s energy transition. Take for instance, the Canada Pension Plan Investment Board, an asset owner with over $646 bn in assets under management.

In January 2018, CPP Investments announced it would acquire
a 6.3% stake, valued at $144 m in ReNew Power, the first Indian renewable energy company to list its shares on the NASDAQ. In April the same year, CPPIB increased its exposure to ReNew Power by an additional $247 m to support ReNew’s acquisition of Ostro Energy, another developer.

At the time, Scott Lawrence, CPPIB’s former managing director and head of fundamental equities said, ““We are pleased to further support ReNew Power in its latest acquisition, which further strengthens their position in India’s renewables sector. Our additional investment aligns well with CPPIB’s overall power and renewables strategy, providing greater diversification for the CPP Fund”.

CPP Investments continues to hold a significant portion of ReNew’s equity. It currently owns 34.6% of the company’s class A ordinary shares.

Another Canadian asset owner, CDPQ acquired
a 50.9% stake in Azure Power in 2020 – a listed solar power developer that developed India’s first private utility scale solar project in 2009. For Azure, CDPQ represents a long-term shareholder that augments the country’s ability capture the Indian energy transition opportunity.

In the context of the India’s energy transition and the pace at which the country is deploying renewable energy capacity, the investment case for the wider industry seems lucrative. Owning significant equity in green subsidiaries of state-owned fossil fuel companies, however, is a different ball game.

Will investor optimism flow into these individual state-owned renewable energy companies? time and more importantly valuations will tell.