Elara Securities (India) Private Ltd has a positive stance on the utilities sector since power firms under the brokerage's coverage universe are expected to perform well in Q4FY23.
With increasing capacity and generation, the brokerage expects Power Grid Corporation of India to report better growth for its regulatory business. CESC and JSW Energy could record modest gains.
A stronger offtake could lead to great outcomes for Coal India. A stronger contribution from the renewables sector could help Tata Power report a solid growth rate.
However, given the decline in volumes in the market for short-term electricity, Indian Energy Exchange should continue to report lower numbers.
The brokerage reports that the generation of power in India increased by 11.6% in FY23, with thermal power generation up 12% and renewable energy up 22%. With the start of summer and promising development prospects for manufacturing, demand is projected to increase sharply over the following 6–7 months.
The brokerage expect the pace of growth in electricity consumption to be raised but not as high as in 2022 given that nine states will be voting in 2023. The rise of utilities' earnings per share may be boosted by this tendency. In India, regulatory support for utilities that own renewable energy sources and storage is quite positive, creating a multi-year smooth growth runway.
"We maintain our positive stance for SJVN and NHPC in the hydro space and for NTPC as it is set to play a pivotal role in achieving India’s 500GW RE target," said Elara Securities.
Let's look at the brokerage's Q4FY23 expectations from the companies under its coverage.
In Q4FY23E, revenue may be higher by 23.5% year-on-year (YoY) to ₹406 billion, owing to increased growth in regulated equity and higher generation and commissioning of renewable projects. Adjusted profit after taxes (PAT) is likely to be up 7.4% YoY, it said.
According to the brokerage report, Power Grid Corporation of India’s adjusted PAT is likely to rise 12% YoY to ₹43.1 billion and revenue is expected to grow 10.4% YoY to ₹117 billion in Q4FY23E.
On the strength of its operating results, Tata Power's consolidated adjusted PAT is expected to increase by 23.9% YoY, however, reported PAT may decline. High coal profit, increased momentum for renewable energy, and improved distribution segment earnings (on lower AT&C losses) could support growth.
Due to increased generation, JSW Energy's revenue is anticipated to increase by 4% YoY to ₹25.4 billion in Q4FY23E; however, the brokerage anticipates a decline in merchant sales volume for the quarter as a result of lower prices. The adjusted profit is anticipated to increase 33.5% YoY.
Due to improved generation, NHPC's net sales are predicted to increase by 4.7% YoY to ₹15.7 billion in Q4 FY23E, while profits may increase by 5.9% YoY. Additionally, Q4FY22 saw increased production, largely as a result of improved water accessibility.
"We expect Torrent Power’s net sales to rise 35.0% YoY to ₹50.5 billion on improved Plant Load Factor (PLF). Adjusted PAT is likely to rise 5.9% YoY to ₹3.8 billion, but is expected to dip sequentially based on lower contribution from gas-based plant generation. Reported PAT may remain at similar level," said the brokerage.
The brokerage predicts that the company's PAT will drop 4.5% YoY in Q4FY23E due to reduced volume, down 3.6% YoY to 26,051MU over Jan.–March due to lower volumes from the day ahead power market, which will also be sequentially lower.
"SJVN’s net sales are likely to rise 8.9% YoY, but likely dip around 36.3% quarter-on-quarter (QoQ) on lower generation (lower by 2% YoY for the quarter) to ₹3.5 billion in Q4FY23E. Net profit may grow 6.7% YoY to ₹2.8 billion," said the brokerage.
According to the brokerage, CESC's net revenues should increase 2.2% YoY to ₹16.4 billion because of increased generation and decreased distribution losses. However, due to a lower merchant tariff on lower pricing, net sales can decline sequentially. In Q4FY23E, standalone net profit may rise 18.0% YoY to ₹2.8 billion.
The consolidated reported PAT for Coal India is anticipated to increase 16.6% YoY to ₹78.3 billion. Due to increased coal offtake (3.7% YoY growth in Q4FY23) and higher e-auction realization, up 64.7% YoY, net revenue could increase 11.3% YoY to ₹364.1 billion.