Elara Securities in its latest note said the growth in regulated equity from capacity expansion, new transmission line additions, improved hydro generation, sustained volume growth in the short-term market, and contributions from solar EPC & rooftop installations will drive solid earnings growth for power companies.
Ahead of Q2 results, the domestic brokerage has retained its positive outlook on NTPC Ltd, driven by increased regulated equity from thermal capacity additions. It likes CESC Ltd for its strategic shift toward renewable energy (RE) and NLC India Ltd for its expanding project portfolio. Here's what it said on power sector companies:
NTPC Elara Securities said NTPC is a play on energy security as well as transition. It is expected to be a key beneficiary of the government’s 80GW thermal capacity addition target. The company will invest in 26GW. Out of this, 9.5GW is currently under construction, 8.0GW is in the tendering process, and the remaining 8.5GW will be awarded by next year.
"NTPC plans to commission 7.0GW of thermal power in the next three years. It has an ambitious target of 60GW of renewable capacity by CY32. It plans to commission 16GW of RE capacity in the next three years. It has filed for a draft red herring prospectus (DRHP) for an eventual public listing. We expect its regulated equity to sustain at Rs 87,700 crore in Q2FY25E vs Rs 81500 crore in Q2FY24," Elara said.
The brokerage said NTPC earns an assured return on its regulated assets and that it expects a healthy Q2 with its revenue and PAT rising 6 per cent and 10 per cent, respectively, based on increase in regulated equity.
Power Grid Power Grid Corporation of India has recently raised its capex guidance to Rs 18,000 crore in FY25 from Rs 15,000 crore earlier, on account of winning new projects. The company has a capitalisation target of Rs 18000 crore in FY25, which is almost double what it incurred in FY24.
"It has furnished a project pipeline of Rs 2 lakh crore for the next 7-8 years. PGCIL is likely to be the major beneficiary of the RE capacity addition. Also, it remains the preferred choice of the government for high value and strategically important transmission projects, such as the Leh transmission project," Elara said.
The brokerage expects expect Power Grid's regulated equity to increase to Rs 87,400 crore in Q2FY25E on commissioning of new transmission lines and sub-stations. It sees sales and PAT for Power Grid rising 5 per cent and 6 per cent, respectively, in Q2FY25E.
CESC Elara Securities said CESC will post healthy earnings on improved performance from its distribution business on lower AT&C losses. CESC is foraying into the RE business, which is a low-cost option for the company.
The company has plans to develop a 3.2GW solar wind-hybrid renewable project in the next three years. It expects 1GW of RE to be commissioned by March 2026, with an additional 1GW to be commissioned in each of the following years. Elara expects net sales for CESC to rise 9 per cent in Q2 YoY based on higher generation and a reduction in distribution losses. Net profit may rise 9 per cent YoY, it said.
Tata Power Tata Power’s solar EPC business is likely to give a boost to its revenue. Elara expects Tata Power's Q2 revenue to rise 9 per cent YoY and PAT 11 per cent YoY. Tata Power has setup a 4GW solar cell and module manufacturing plant of which the module plant has become operational and already produced 130MW of module in Q4FY24 and 615MW in Q1FY25, while the cell plant will be commissioned in Q2FY25 and become stabilised until December 2025, Elara noted.
SJVN Generation for SJVN increased 6 per cent YoY to 4,408MU in Q2FY25. The company has secured assured returns on its regulated assets and incentive income based on plant performance and design energy.
"We expect revenue to grow by 4 per cent YoY while PAT may increase by 3 per cent YoY. It has four hydro projects with 1,558MW capacity, one thermal project with 1,320MW and 11 solar projects with 1,958MW under construction. It plans to add 2,638MW capacity in FY25, which its total operational capacity would reach 5GW in FY25," it said.
NLC India NLC India generation increased 5 per cent YoY to 4,591MU. It earns assured returns on its regulated asset base. It has a consolidated generation capacity of 6GW and has plans to ramp up total capacity to 20GW by FY30.
"The company aims to expand its mining capacity to 104mtpa from 50mtpa currently. We expect revenue and PBT to increase 8 per cent and 66 per cent, respectively.
Indian Energy Exchange Volume momentum continues for IEX in Q2. Elara Securities expects a robust quarter, driven by healthy volume with a 28 per cent YoY rise in revenue and PAT increase 22 per cent YoY. The day-ahead market (DAM) traded 14,332 million units (MU), up 27 per cent YoY, while the real-time market (RTM) reached 10,732MU, a 31 per cent YoY increase. The IEX Green Market surged 246 per cent YoY, with a total of 2,584MU traded.
"The green day-ahead market (G-DAM) saw growth of 394 per cent, reaching 2,534MU. However, the day-ahead contingency and term-ahead market (TAM) volume dropped 42 per cent YoY to 2,684MU. The green term-ahead market (G-TAM) traded 49.7MU during the quarter," it noted.