Domestic brokerage firm Emkay Global Financial Services is optimistic about the power sector stocks as the brokerage firm highlighted that the power demand growth rebounded to double-digits in November 2022, leading to 5.5 percent year-on-year (YoY) generation growth in the first two months of Q3FY23.
Power generation was flattish in October 2022 due to heavy rains. Generation from thermal units was up 5.7 percent YoY, while Renewable energy (RE) generation was up 11 percent YoY. On a three-year CAGR basis, generation is up 5.2 percent, with thermal and RE growth at nearly 5 percent and nearly 15 percent, respectively, Emkay pointed out.
The brokerage firm expects demand to see a continued surge over the next six-seven months, given seasonality and general economic activity. PMI manufacturing clearly shows strong manufacturing activity as well and, hence, power demand growth would remain strong in the medium term.
"The second half (H2) is typically seasonally-strong for thermal power plants owing to lower generation from
other sources. We believe that as demand sees traction, companies (like NTPC) with underutilised capacity would benefit," said the brokerage firm.
The brokerage firm has 'buy' recommendations on the following three power stocks:
The brokerage firm pointed out that while NTPC’s coal PLF (plant load factor) during October and November 2022 was nearly 67 percent (marginally lower than last year’s), there has been an improvement in November 2022 (PLF at 71 percent versus 66 percent YoY).
The year-to-date PLF stands at nearly 75 percent versus nearly 69.5 percent YoY. NTPC would add about 18GW of projects (thermal, hydro and RE) over the next three years. RE monetisation is expected in Q4FY23, said Emkay.
The brokerage firm added that NTPC intends to tender 5/6GW of coal plants over the next two years.
"Given the huge underutilized coal capacity (current PLF in the 75-80 percent range, while NTPC units have achieved 92-93 percent PLF earlier, on an annual basis), we believe any strong uptick in demand in the medium term will benefit NTPC. We maintain our December 2023 target price of ₹200 per share for NTPC, which currently trades at 1.1 times with nearly 12 percent RoE (return on equity) on FY25E," said Emkay.
The brokerage firm has maintained its December 2023 target price of ₹51 per share, based on SoTP methodology.
The company has nearly 7.5GW of projects under various stages of construction.
As per the brokerage firm, the under-construction hydro projects are:
(i) 2,800MW hydro projects (Subansiri Lower 200MW and Parbati II 800 MW), with an anticipated project cost of ₹31,100 crore. These are expected to be commissioned within the next 12-15 months and will add nearly ₹1,600 crore to NHPC’s annual profitability.
(ii) Projects entailing 2.1GW capacity are being developed via the JV route, with a project cost of ₹17,000 crore and expected commissioning during FY26-27.
(iii) Through its subsidiaries, nearly 1.3GW of projects with project cost of ₹1100 crore are expected to be commissioned in FY26 and a 120MW project (with cost of ₹900 crore) is scheduled for commissioning in FY25.
In the case of CESC, the performance of distribution franchisees (DFs) and tariff revision at the standalone entity remain key concerns, said Emkay.
Rajasthan DFs, despite having completed four-five years, have not been able to see break-even because of the Kota circle. Rajasthan DFs made a loss of ₹18 crore in the first half of FY23 against ₹21 crore loss YoY.
"Malegaon losses widened to ₹48 crore during the first half of FY23 against a loss of ₹29 crore YoY. On a positive note, the performance of the Noida circle and of Dhariwal Infrastructure has been encouraging in the current fiscal. Power Grid remains a low earnings-growth (3-5 percent) story in the medium term, with a 6-7 percent dividend yield," said Emkay Global.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.