scorecardresearchEmkay Global is positive about three power sector stocks; Take a look

Emkay Global is positive about three power sector stocks; Take a look

Updated: 10 Jun 2022, 11:10 AM IST
TL;DR.

  • Emkay Global is positive about the demand scenario of the power sector. It pointed out that power generation grew by nearly 17 percent year-on-year (YoY) in the first two months of Q1FY23, with a 3-year CAGR of about 5 percent.

Thermal energy from thermal power plants (with high variable costs) is proposed to be replaced by RE sources to optimize the cost of power delivered to customers, said the brokerage firm. (Representative Image/HT File)

Thermal energy from thermal power plants (with high variable costs) is proposed to be replaced by RE sources to optimize the cost of power delivered to customers, said the brokerage firm. (Representative Image/HT File)

Brokerage firm Emkay Global Financial Services is positive about three power sector stocks as it highlighted the bright prospects of the sector.

Emkay Global pointed out that power generation grew by nearly 17 percent year-on-year (YoY) in the first two months of Q1FY23, with a 3-year CAGR of about 5 percent. Thermal and renewable energy (RE) generation increased by 15 percent and 32 percent YoY, respectively, with a three-year CAGR of 4.4 percent and 15.5 percent, respectively.

Thermal energy from thermal power plants (with high variable costs) is proposed to be replaced by RE sources to optimize the cost of power delivered to customers, said the brokerage firm.

Here are the three stock recommendations from Emlay Global:

NTPC | Buy | Target price: 180 | Upside: 16%

The brokerage firm has a 'buy' rating on the stock as the company remains a play on large fossil assets (with robust cash flow), along with strong growth in the RE space.

NTPC’s standalone generation grew by 16.5 percent YoY, with a three-year CAGR of 7.8 percent. Thermal PLF stood at nearly 81 percent in Apr-May’22, up from nearly 72 percent YoY.

Its subsidiaries NEEPCO+THDC combined saw nearly 48 percent YoY growth in generation, with a three-year CAGR of 6 percent.

The stock price of NTPC has increased by more than 40 percent in the last one year, but it still trades at about 1 time PB on FY24E with an RoE of nearly 12 percent and an earnings CAGR of 6-7 percent.

NTPC intends to float an IPO or invite a strategic investor for its RE portfolio in FY23.

CESC | Buy | Target price: 108 | Upside: 39%

The key issues in CESC’s license areas are low demand and no increase in tariffs. On the demand front, power generation for CESC license areas and Haldia Energy grew by about 9 percent YoY, with a three-year CAGR of 25 percent.

"We believe this will lead to better standalone earnings. Further, Dhariwal’s medium-term PPA has started and should add nearly 80 crore to the profitability in FY23. We also believe that better demand in Kota will lead to lower losses and will help CESC improve its consolidate earnings. The stock trades at 0.85 times FY24E book and 6.6 times FY24 earnings," said the brokerage firm.

NHPC | Buy | Target price: 40 | Upside: 21%

After a gap of four-five years, NHPC is expected to commission 2,800 MW of hydro capacity (50 percent of its present capacity of 5.5GW) over the next two odd years.

Parbati II (800MW) and Subansiri (2,000MW) are at an advanced stage of construction. Together they will add 9,000 crore to the regulated equity over the next two-three years, the brokerage firm said.

"This will lead to an improvement in RoE from 9.5 percent to nearly 11 percent by FY25. We expect an EPS CAGR of about 11 percent over FY22-FY25E. We have raised our target price from 37 to 40 as we roll over our target multiple to June’23. The stock trades at 9.3 times and 7.6 times PE on FY24E/FY25E," said the brokerage firm.

Disclaimer: The views and recommendations made above are those of the brokerage firm and not of MintGenie.

 

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First Published: 10 Jun 2022, 11:10 AM IST