NTPC, IEX, JSW Energy, Tata Pwr: Jefferies’ top recommendations on power stocks

Market


Solar Energy Corp of India (SECI) awards have slowed to just 4.6 GW in 9MFY23 with another 4-5 GW planned by March 2023 vs planned 15 GW + run rate. SEBs taking their time to sign new PPAs, restriction and higher duties on module imports and module price volatility are impacting sector growth, highlighted Jefferies, which believes T&D spend, which has lagged generation, will pick up in 2023. Its top stock picks are Power Grid and NTPC/JSW Energy, which have a pipeline of projects to execute.

The brokerage house has Buy tags on NTPC with a target price of 195, Power Grid (TP: 260) and JSW Energy (TP: 315). Meanwhile, it has underperform ratings on Indian Energy Exchange (IEX) (TP: 115) and Tata Power (TP: 180).

It said that re-rating drivers of operational efficiency improvements, capacity additions and right ESG noises are in place for NTPC. For Power Grid, rising bid pipeline, higher dividend and asset monetisation remain re-rating triggers. Additionally, entry into smart metering, distribution business, EV charging will help valuations as visibility improves in those areas also.

“JSW Energy is a beneficiary near-term of higher merchant power tariffs and long-term of a re-rating from higher RE mix in earnings. Whereas, IEX faces the near-term headwind of the competing exchange, which has launched operations and gaining share,” it said,

Jefferies’ negative thesis on Tata Power has been concerns on medium-term ROE being below cost of capital on its power asset basket. Mundra tariff hike resolution is not seeing a favorable stance from SEBs yet.

“We are confident on the renewable energy growth opportunity continuing playing out over the next decade. However, a very important aspect is companies bidding sensibly and not at low returns, replicating the thermal power issues India has seen in the past,” the note stated.

It believes Power Grid and NTPC, with access to lowest cost funding within the sector and Government return-focussed boards, are best placed to benefit from this opportunity. JSW Energy has proved itself on being a return-conscious company, the brokerage added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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