Shares of PSU Bharat Heavy Electricals Limited (BHEL), which manufactures power generation equipment, has grown 77% so far in FY24, while JSW Energy is also up 75%. Investors are also paying attention to PSU utilities like NTPC and NHPC, which have given returns of 36% and 30% in FY24, as they look inexpensive and come with good dividend yields.
Peak deficit periods are on the rise, with current thermal utilisation close to an all-time high of 80%. India’s power demand spiked in August 2023 to 16% from 8% in July on the worst monsoon in 122 years (El Nino effect) resulting in heatwaves in west and south India.
October tends to see the highest power consumption after April-May, as warmer temperatures and the festive season drive residential demand and peak deficit is likely to be seen again, industry experts say.
“As India enters a phase of capex-driven GDP growth, power intensity should rise. We expect annual thermal PLFs (plant load factor) to cross 80% by FY25E, above a two-decade peak. Power generation and T&D investments should rise 2.2x to $280 bn in FY24E-30E vs FY17-23,” Jefferies analyst Lavina Quadros said.
NTPC has already announced plans to raise thermal capacity addition and Adani Power is looking at scaling up capacity by 50% in the next five to seven years.
“Our power demand estimates of 7% CAGR in FY23-30E assume residential demand further rises to 29%+ of overall demand by FY30E. The government plans to make India a manufacturing hub in the medium term, which means that there could be a surprise to our estimates if industry demand recovers sharply,” Jefferies said.
Which stocks to buy?
For domestic brokerage firm Motilal Oswal, NTPC remains the top bet in the power sector as valuations are reasonable. “I remain positive on the entire power sector. So top preference is NTPC, followed by Tata Power and JSW Energy,” said Motilal’s Rahul Shah.
Fund manager Gurmeet Chadha, who bought more of Tata Power shares recently, said it is one of the most integrated plays starting from generation, transmission and the renewable energy portfolio. “They got refinancing done recently. At some point of time, probably they will hive off the renewable portfolio. And they have a clear goal of 25 gigawatts there. Doing very good stuff even on EV charging space with some very specialised tires. And they are in smart meters as well. So it gives you a complete play,” he said.
NTPC, Power Grid and JSW Energy are top picks of Jefferies while NHPC is the top bet for CLSA.
“NHPC is trading at a 28% discount to the Nifty and there is scope for a further rerating with much improved visibility for a step-jump in its EPS and structural growth prospects,” CLSA said while assigning a target price of Rs 63 on the stock.
(Data inputs: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)