Buy NTPC, Adani Transmission, others, Jefferies says power sector set to witness decade of growth

Buy NTPC, Adani Transmission, others, Jefferies says power sector set to witness decade of growth

India’s power sector is set to witness strong growth over the next decade, analysts at global brokerage and research firm Jefferies said. In a report, analysts said that increasing renewable energy capacity, revival in thermal capital expenditure, and transmission capex CAGR of 15% are some of the triggers that will aid growth for the sector. Stocks such as NPTC, Power Grid Corporation, Adani Transmission, and JSW Energy are seen as key beneficiaries of this trade. What’s working for Power sector

“Renewable Purchase Obligation (RPO) should drive capacity addition until surplus power is absorbed by FY25E-26E,” Jefferies said. They added that Solar Energy Corp of India (SECI) award should rise to 17-18 GW annually vs the last 3-year run-rate of 12-15 GW and eventually move to 35-40 GW to meet demand. Further, analysts believe that in 2022 capital expenditure on renewable energy will be back on the growth path after having fallen in recent years. The green hydrogen policy of February 2022 will also be finalised soon which will further aid the renewable energy capacity. NTPC has already awarded India’s first green hydrogen project, a 50kW micro-grid pilot project for hydrogen production using electrolysers.

Stock talk

NTPCTarget Price: Rs 180 | Upside: 20%

Jefferies has increased the target price for the company to Rs 180 per share from Rs 165 earlier. So far this year, NTPC share price has soared more than 18% to now trade at Rs 149 per share. “FY22-25E should see NTPC’s consolidated non-fossil portfolio rise 3.6x to 15 GW. Our estimates factor 10 GW RE by FY25-26, vs NTPC’s target of 15 GW,” Jefferies said. They added that monetisation plans with some stake sale by FY23E end with follow-up as more assets come on the ground is likely to be an important trigger ahead.

NTPC is on-track to achieve 8 GW of renewable energy and inch it up to 60 GW by 2032. 1.8 GW is operational, 3.4 GW is under-construction and balance at award/financial closure stages. “ Our revised PT of Rs180 (vs Rs165 previously) values the company at 1.1x consolidated PB Sept’24E (vs 1.1x on standalone basis earlier) as visibility on RE is improving,” Jefferies said.

Power GridTarget Price: Rs 260 | Upside: 23%

The Ministry of Power began its focus on transmission spend required to cater to the accelerating renewable energy generation capacity, only towards the end of 2021. “We believe realisation has set in that RE has a shorter 9-15 months gestation vs 48 months in thermal, and transmission spend cannot lag two years from generation ordering,” analysts said. Power Grid is a key beneficiary of this policy.

The company has a market share of 40% in TBCB projects and the bid pipeline has risen 2.9x from Rs108 bn in 1QFY22 to Rs 319 bn in 4QFY22. “ Incremental Rs 128 bn wins from the pipeline could see FY23E capex target rise to Rs 100-106 bn,” Jefferies said. Further, asset sale in the current fiscal year has also not been ruled out. The target price has been up increased to Rs 260 per share from Rs 255 earlier.

Adani TransmissionTarget Price: Rs 3,275 | Upside: 9%

The company is seen as a Pure play on transmission and distribution. “The company is the largest private-sector player in transmission with a market share of 22% in TBCB bids. B2C interface is rising with access to 12+ mn consumers in the Mumbai distribution business,” Jefferies said. The company is projected to see 8% revenue CAGR and 18% PAT CAGR in FY22-25E, driven by locked-in growth in both the Transmission and Distribution business. Jefferies has initiated the coverage of the stock with a target price of Rs 3,275 per share. Currently, the stock is trading at Rs 2,997 apiece.

JSW EnergyTarget Price: 310 | Upside: 29%

The coverage of the stock has been initiated at a target price of Rs 310 per share. “We believe JSWE is a beneficiary near-term of higher merchant power tariffs and long-term of a re-rating from higher RE mix in earnings,” the brokerage firm said. “We expect JSWE’s capacity to grow by 4.3x to 20GW by FY30E indicating significant potential opportunities in India’s power generation. We estimate the power demand to rise at 7% CAGR over FY22-30E considering residential and manufacturing-linked demand,” they added.

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