these are the four stocks NTPCNHPC, CESC, and Power Grid.
MK Global highlights this in its latest research note Power Generation growth came back to double digits in Nov-Dec ’22, leading to ~8% YoY generation growth during Q3FY23. The production was flattened due to heavy rains in Oct-22. Both November and December ’22 saw double-digit growth in production. Generation from thermal units was up 7.3% YoY for the quarter, while RE generation was up 25% YoY.
Furthermore, the report mentions that generation has grown by 5.5% on a 3-year CAGR basis, with thermal/RE growth at 5.3%/~16%, respectively. No major growth has been observed in Nuclear/Hydro vertical during the period of 3 years. Meanwhile, on a 9M basis, electricity generation growth stood at 10% YoY, supported by 9%/19% growth from thermal/RE sources.
Thus, the brokerage’s note said, “We expect demand to continue to pick up over the next 6-7 months, with the onset of summer. Indian Manufacturing PMI remains strong and hence, growth in demand is expected to remain robust.”
India’s manufacturing activity rose to a 26-month high at 57.8 in December, driven by a strong expansion in new orders and output—reflecting resilient demand despite global challenges. Last month the Manufacturing PMI stood at 55.7.
Apart from this, analysts at MK Global have recommended buy on four power stocks. These are:
Buy NTPC target price 200.
According to Emkay, NTPC (SA)’s generation grew by 2% in the quarter, largely due to lower utilization during October 22, lower than the thermal growth of 7%. For 9MFY22, generation growth was 10% versus 9% thermal growth for India as a whole. NTPC’s major Subsidiaries/JVs have shown growth in performance – 12% growth for the quarter and 35% for 9M. While NTPC’s Coal PLF has improved to 76% in Dec-22 after falling to 64% in Oct-22. YTD PLF is 75% vs 69%. NTPC will add 18 GW of projects (Thermal, Hydro and RE) in the next 3 years. RE demonetisation is expected in Q4FY23.
Furthermore, it is also stated that NTPC intends to tender 5/6GW coal plants in the next 2 years. Given coal’s huge unutilized capacity (current PLF is in the 75-80% range, while NTPC units have previously achieved 92-93% PLF on an annualized basis), analysts at Emkay believe that any strong growth in demand in the medium term means NTPC benefits
Following the above, the brokerage’s note said, “We maintain our Dec-23 TP of Rs 200/share on NTPC, which currently trades at 1x with 12% RoE on FY25E.”
On Thursday, despite broad bearish markets, NTPC stock was trading mostly positive and 169.85 on the BSE, up 1.98%. In one year, the stock has jumped nearly 29%.
NHPC: Buy at a target price of 51.
MK’s note said, “We maintain a TP of Rs/share on Dec 23-23, based on the SOTP methodology. The company has ~7.5 GW projects under various stages of construction (including subs/JVs).” “
In particular, MK highlighted that the company has hydropower projects under construction:
– 2,800MW hydroelectric projects (Subansiri Lower 200MW and Parvati II 800MW), with a project cost of Rs311 billion. These are expected to be commissioned within the next 12-15 months and are likely to add Rs 16 billion to NHPC’s annual profitability.
Projects with a capacity of 2.1GW are being developed through the JV route, with a project cost of Rs 170 billion and are expected to be commissioned during FY 26-27.
Through its subsidiaries, 1.3GW projects with a project cost of Rs 11 billion are expected to be commissioned in FY26 and a 120MW project (with a project cost of Rs 9 billion) is scheduled for commissioning in FY25.
NHPC shares closed on BSE 39.25 on Thursday, down 1.13%. The stock has climbed nearly 25% on Dalal Street in one year.
CESC (Buy at target price) 101), Power Grid (Buy at target price of 250):
Emkay’s analysts noted in their report that CESC’s DIL saw strong production growth for the quarter – 26% year-on-year. However, the DF performance of CESC and the tariff revision in the standalone unit are major concerns. Rajasthan DFs, despite completing 4/5 years, have not been able to break even because of the quota circle. Such DFs made a loss of Rs 18 crore in the first half of FY23, compared to a year-on-year loss of Rs 21 crore. Malegaon’s losses widened to Rs 480 million during the first half of FY23, compared to a loss of Rs 290 million year-on-year.
On a positive note, MK’s note said that the performance of Noida Circle and Dhariwal Infrastructure in the current financial year has been encouraging.
With respect to Power Grid, MK’s note states that the company remains a low earnings-growth (3-5%) story with a 6/7% dividend yield over the medium term.
CESC share on Thursday 76.95 broadly flat compared to the previous session on the BSE. Power Grid ended on stock declined 1.09% at 208.80 on the BSE.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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