Top 5 Green Hydrogen Stocks Poised to Benefit from India's Renewable Energy Mandate

The New and Renewable Energy Ministry is planning to introduce a mandate on the use of green hydrogen in different industries. The mandate would require certain industries, such as petroleum, steel, and fertilizers, to consume a certain proportion of green hydrogen.

The goal of the mandate is to promote the use of green hydrogen and help India achieve its climate goals.

The mandate is still in the planning stages and has not yet been approved by the Union Cabinet. The government is also considering incentivising several industries that comply with the mandate. This would help to offset the higher cost of green hydrogen compared to traditional fuels.

The introduction of a green hydrogen mandate would be a major milestone in India's clean energy transition. It would help to create a market for green hydrogen and stimulate the development of new technologies.

Moreover, India is planning a massive expansion in the green hydrogen space. It aims to eventually become a large exporter and is already in talks with the governments of other countries to export green hydrogen.

This could be a fantastic opportunity for several existing businesses to capitalize on the growth.

Let's look at top 5 companies that could potentially emerge as early leaders and could deliver handsome returns to investors.

#1 Adani Enterprises

Adani Enterprises, the airport to renewable energy conglomerate, is one of the latest entrants in the green hydrogen space but is making strong headway.

It plans to invest US$70 bn across the entire green energy value chain, from electrolyser manufacturing to AI-based utility and industrial cloud platforms.

This massive investment will help Adani become a green hydrogen giant and put India on the map as the cheapest producer of hydrogen.

The company plans to invest US$50 bn over the next 10 years to build the world's largest green hydrogen ecosystem in India.

Earlier this project was a tie up with TotalEnegies, a French energy company. However, since February 2023, after the Hindenburg Research, the foreign company has put its participation on hold. But Adani Enterprises plans to ahead with the project as it is and at the same pace.

The conglomerate's constant expansion has led to increased borrowings and a debt-to-equity ratio of 1x in 2023, up from 0.2x in 2019. The interest coverage ratio is also relatively low at 1.8x in 2023.

Adani's leveraged balance sheet could pose challenges to its ambitious plans. However, the company has outlined a financing plan.

According to this plan, a fifth of the US$70 bn investment will come from internal accruals. The balance will come from a prudent mix of foreign direct investments, loans and bonds.

The boards of Adani Enterprises and the electricity transmission company Adani Transmission have already approved raising up to over $2.5 bn (approx. Rs 21,000 crore) through share sales to qualified institutional investors.

The stock is trading at a Price-to-Earnings multiple (P/E) of 102x, a 17% premium to its 5-Yr P/BV of 87x.

To know more about the company, check out its factsheet and latest quarterly results.

#2 Larsen & Toubro

Next on our list is the country's engineering major, Larsen and Toubro.

Larsen & Toubro is also a major player in the green hydrogen space. The company is one of the three players in India with an operational green hydrogen plant. It plans to make green hydrogen an integral part of its clean fuel adoption policy.

The company has forged multiple partnerships for the development of technology and projects in the green hydrogen space in the past year. These partnerships include a tie-up with the French company McPhy to manufacture electrolysers and a collaboration with the Indian Institute of Technology Bombay to develop a roadmap for the development of green hydrogen in India.

The engineering major also has a joint venture with Indian Oil Corporation and ReNew Power. Together they plan to invest upto US$4 bn in their green hydrogen businesses over the next 3-5 years.

L&T has also approached over a dozen companies from various sectors, offering green hydrogen solutions. These companies include steelmakers, fertilizer producers, and oil and gas companies.

Recently, the company announced that it will set up infrastructure for the world's largest green hydrogen plant being built by NEOM Green Hydrogen Company.

The company has earmarked a capital outlay of US$2.5 billion over the next three to four years for all of its green energy initiatives. This investment will help L&T to expand its green hydrogen production capacity, develop new green hydrogen technologies, and enter new markets.

L&T has deleveraged its balance sheet in the past five years. The debt-to-equity ratio has fallen from 1.2x in the financial year 2019 to 0.7x in 2023. The interest coverage ratio has also been rangebound at 2.8 times over the same period. These healthy financial parameters give L&T the financial flexibility to invest in new projects.

The stock is trading at a P/E of 33.1x, a 46% premium to its 5-Yr P/E of 22.6x.

To know more about the company, check out its factsheet and latest quarterly results.

#3 Indian Oil

Next on our list is the state-owned oil and gas major, Indian Oil.

IOC, a petroleum refinery, too, has ambitious plans to tap into the green hydrogen opportunity.

The petroleum refining business accounts for over 40% of the total global hydrogen demand. At present, oil refineries are the primary consumers of hydrogen, using it in the process of de-sulphuration.

The current hydrogen production process is highly carbon-intensive as it uses carbon-intensive fossil fuels.

The refinery sector is an emissions-intensive sector, accounting for 3% of the global carbon emissions. Therefore, the country's majority of oil and gas producers and explorers are venturing into green hydrogen.

IOC, one of the largest producers of hydrogen with conventional carbon-intensive methods, is targeting to convert 50% of hydrogen produced by 2030.

The company is building a green hydrogen plant at its Mathura and Panipat refineries. It also plans to set up a green hydrogen manufacturing unit in Kochi that will draw energy from the solar power facility of the Kochi International Airport.

Emboldened by the strong prospects in the sector, the oil major announced its partnership with ReNew Power and Larsen and Toubro to produce green hydrogen earlier this year.

This venture brings together the strong credentials of L&T in designing, executing and delivering EPC projects, Indian Oil's established expertise in petroleum refining along with its presence across the energy spectrum, and the expertise of ReNew in offering and developing utility-scale renewable energy solutions.

IOC is a leader in its field which is well-reflected in its incredible performance. The sales and net profits have grown at a 4-Yr CAGR of 7.8% and 3.1%m respectively. The returns have been strong, averaging over 15% consistently.

This has strengthened the balance sheet. It is well-poised to fund the expansion plans with a healthy debt-to-equity of 0.4x and interest coverage of 7.1x.

The stock is trading at a P/BV of 0.92x, close to its 5-Yr P/BV of 0.9x.

To know more about Indian Oil, check out its factsheet and latest quarterly results.

#4 Oil India

Fourth on our list is Oil India.

Oil India is a state-owned oil and gas company, also looking to get involved in the green hydrogen space. It is the only player with an operational green hydrogen plant, which was commissioned at its Jorhat, Assam facility in March 2022 with a capacity of 10kg per day.

The company plans to expand it to 30 kg per day and is also doing a trial run of a hydrogen fuel cell e-bus.

Apart from this, Oil India is studying the blending of green hydrogen with natural gas and the commercial applications of the blended fuel.

Moreover, it plans to establish a hydrogen dispensing unit at its Assam capacity. These endeavours pave the way for the company's involvement in the emerging field of green hydrogen technology.

The state-run oil major is participating in HVIC, a hydrogen innovation cluster in Assam, led by IIT G. The cluster aims to foster innovation, collaboration, and research in the hydrogen sector. This should further solidify the company's commitment to sustainable energy solutions.

Oil India's business has been doing well, with revenue and net profit growing substantially at a 4-Yr CAGR of 19.5% and 36%, respectively. This stellar performance has propelled the returns, which are up three times in the last five years. As a result, the balance sheet has also strengthened with a low debt-to-equity ratio of 0.5x. This puts the company in a good position to expand its green hydrogen business.

The stock is available at a P/BV of 0.79x, a 13% premium to its 5-Yr P/BV of 0.7x.

To know more about the company, check out its factsheet and latest quarterly results.

#5 NTPC

Last on our list is National Thermal Power Corporation (NTPC).

NTPC is the largest power generation company in India. It is also one of the leading players in the green hydrogen space.

The company has several initiatives underway in green hydrogen. This includes setting up India's first green hydrogen fuelling station in Ladakh, which is expected to be operational by October 2023.

It also includes setting up India's first green hydrogen energy storage at its Simhadri facility. The government-owned entity is also running a hydrogen pilot project in its Vindhyanchal unit and setting up India's biggest 5MW electrolyser.

Apart from these pilot projects, NTPC has been exploring the green hydrogen space with some experiments. It is working on green hydrogen derivatives, green ammonia & green methanol, with HPCL Mittal Energy. The company has made some headway in this by commissioning its first green hydrogen blending with piped natural gas project commissioned in Gujarat.

It is also signing a memorandum of understanding (MoU) with the Indian Army for setting up green hydrogen projects at army establishments.

This exhaustive list of initiatives highlights the power giant's commitment to the development of green hydrogen and its potential to decarbonize the energy sector.

But despite these initiatives, the debt-to-equity has remained rangebound. As of March 2023, it stands at 1.3 with an interest coverage ratio of 3.2. The company has limited room to leverage its balance sheet. However, the government will incentivise these efforts, allowing companies to expand with ease.

The stock is trading at a P/BV of 1.43x, a 30% premium to its 5-Yr P/BV of 1.1x.

To know more about the company, check out its factsheet and latest quarterly results.

In conclusion

Green hydrogen is a clean and renewable source of energy that can play a major role in decarbonizing heavy industries and storing renewable energy.

The demand for green hydrogen is expected to reach 2 million metric tonnes per annum (MMTPA) by 2030, in line with India's green hydrogen mission. This will require investments of over US$60 billion.

However, the industry is still in its early stages and needs to scale up and reduce costs before it can become commercially viable. Therefore, investors interested in this sector should watch it closely and identify the companies that have the best chance of becoming long-term winners.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...