Adani Transmission, Tata Power, JSW Energy, NTPC, Power Grid: Share price targets by Jefferies

Jefferies in a latest note said Power Grid and NTPC with access to lowest-cost funding within the utility sector and government return-focussed boards, are best placed within the utility sector. JSW Energy has proved itself to be a return-conscious company, it said while suggesting 'Buy' ratings on the three stocks.

Jefferies also has buy rating on Adani Transmission but underperform rating on Tata Power and IEX.

Jefferies said the commentary by NTPC and Power Grid suggested no adverse outcome likely due to regulated ROE review in December and that will be more of a non-event, as 10-year G-sec yields are close to the levels when the last review took place in December 2018.

For NTPC, it has revised its target to Rs 205 from Rs 195 earlier. For Power Grid, it raised price target to Rs 275 from Rs 260 earlier.

Additionally, it noted, Ministry wants to encourage investment in generation and T&D particularly on the renewable side. "Hence, we do not anticipate a material change beyond 50 bps, at most, on the 15.5 per cent regulated ROE. Final regulation should be out in January 2024 and normally mirrors the draft. Power Grid and NTPC are the most impacted by any change in this regulation, with Tata Power and Adani Transmission seeing a lower impact," it noted.

For Tata Power, Jefferies has a target of Rs 185 against Rs 175 earlier. It finds Adani Transmission worth Rs 1,400.

Watch: Adani Power, Adani Transmission and 2 other group stocks rise as BSE, NSE raise circuit limits

Jefferies said the game-changing distribution reform seems on the backburner for now. It noted that Electricity Distribution Act to promote privatisation is currently with the Parliamentary Standing Committee. Idea

is for State Electricity Boards (SEBs) to be pushed to eventually raise tariffs for the heavily subsidised agriculture sector and reduce losses, as private distribution companies can provide power at lower rates than the SEBs are providing to industrial consumers.

"We believe this has limited visibility for being passed for 18 months at least till National Elections are completed in May 2024, and cabinet/policy formulation will need time as well post the same. This has the highest impact for Adani Transmission, which was a play on these reforms, given which we have reduced terminal growth rate. Also factoring in higher interest rates and some under-recovery, our earnings estimates have also been impacted. A 1 percentage point reduction in the terminal growth rate would translate into a 10-15 per cent change in our price target. Others stocks are not materially impacted by this delay, and hence, we have not reduced their price targets," Jefferies said.

Jefferies noted that SECI awarded 12-15 GW annually in FY21-22, and FY23 ended at 6GW against a target of 15 GW. SEBs, it noted, are not giving demand requirements to SECI, as they are uncertain on the growth outlook post the next 24-36 months.

"Peak power demand deficits are being viewed as a temporary phenomenon for now, though they are being watched closely by SEBs. Awards are expected to pick up to 15 GW+ again if demand grows upward of 6-7 per cen," Jefferies said.

It has a target of Rs 325 on JSW Energy against Rs 315 earlier. On IEX, this foreign brokerage has an underperform rating with a target of Rs 120 from Rs 110 earlier.

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