- Date : 02/03/2023
- Read: 5 mins
India is going through a big transition from fossil fuel-based energy to non-fossil fuel-based energy. It has provided a significant opportunity for power-generating companies like NTPC and Tata Power and transmission companies like Powergrid.
India has the 4th largest renewable installed capacity and is the 3rd largest energy-consuming country globally. During COP26, India has set a 2030 target of 500 GW of non-fossil fuel-based energy. The government and private companies are working together to achieve this ambitious target. The target also provides a good growth runway for the power industry. In this article, we will discuss how the shares of companies in the power sector are expected to perform in 2023.
How will the energy sector and companies perform in 2023?
In 2020, the electricity demand in India was at 1,500 TWH. The power sector demand is expected to grow at a 6% CAGR to 2,700 TWH (an increase of 1.8 times) by 2030.
Chart: India’s power sector demand
(Source: https://static.investindia.gov.in/s3fs-public/2023-01/Renewable%20Energy_0.pdf)
The government, PSUs, and private companies are working towards fulfilling the growth in power demand, focusing on renewable power. As per the Power Ministry website, the current fossil fuel-based or thermal installed capacity is 57% (as of 31 January 2023). However, renewable installed capacity will soon take over.
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Some of the companies that are expected to benefit from the increase in power demand include:
1) NTPC
NTPC is India's largest power-producing company, with an installed capacity of 71,594 MW. The company is aggressively working on ramping up its renewable energy portfolio. By 2032, the company plans to have 60 GW (45% of overall power generation) capacity through renewable sources.
In Q3 FY23, the company posted a net profit of Rs. 4,476 crores. The company also declared an interim dividend of Rs. 4.25/share. NTPC is looking to bring in strategic investors by selling a stake in its renewable energy arm. The stake sale may happen in 2023 and lead to a rerating of the NTPC stock.
As of 17 February, the NTPC shares are trading at 167. ICICI Direct has coverage on the stock with a target price of Rs. 207, implying an upside of 24% over the next 12 to 15 months. The stock offers a decent dividend yield of 4.18%.
Chart: 1-year NTPC share price performance
(Source: Google)
In the last one year, the NTPC share has given a good return of 26%. It may continue the good performance in 2023.
2) Tata Power
It is one of India’s largest integrated power companies. The company has an installed capacity of 14,101 MW. Of this, 5,241 MW (37%) are clean energy from power, hydro, wind, etc. In Q3 FY23, the company posted a net profit of Rs. 1,052 crores (91% Y-o-Y growth). It is the 13th consecutive quarter of profit growth.
The company has an order pipeline of Rs. 15,440 crores. The company is working on various clean energy solutions such as solar plants, rooftop solar solutions, solar pumps, EV charging points, smart meters, waste heat units, etc. All these clean energy solutions are seeing very high demand from users. Tata Power can scale up these clean energy solutions and benefit from them. The stock has long-term compounding potential.
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3) Powergrid
In the above section, we saw how companies like Tata Power, NTPC, etc., are building huge new capacities in the renewable power space. Powergrid will have a huge transmission opportunity worth Rs. 1.4 lakh crores in the renewable power space.
Powergrid is India’s largest power transmission company. Apart from transmission projects, it does consultancy and telecom projects. Recently, it has also forayed into the high-growth smart meters space. In Q3 FY23, the company reported a 10.5% Y-o-Y growth in net profit to Rs. 3,700 crores.
Powergrid has Rs. 47,600 crores worth of projects in hand, Rs. 23,000 crores worth of projects under the bidding phase, and additional projects worth Rs. 34,000 crores that are likely to be bid out in the next 1-2 years.
The company has also signed an MOU with the Gujarat Discom for implementing 66 lakh smart meters. Powergrid is also in talks with other states like Madhya Pradesh and Karnataka for similar deals.
HDFC Securities has a buy rating on the Powergrid stock with a one-year target price of Rs. 256 implying an upside of 20% from the current level of Rs. 214 (as of 17 February 2023). The stock also offers a decent dividend yield of 5.94%.
Chart: 1-year Powergrid share price performance
(Source: Google)
In the last one year, the Powergrid stock has given a return of a little over 9%. In the next one year, it has the potential to provide a return of about 20% with a decent dividend yield of around 6%.
Apart from the above three companies, other companies like Reliance Industries (RIL), Adani Green, etc., have ambitious plans in the renewable energy space. However, RIL is a play on oil & gas, telecom, retail, etc., along with the green energy space. The Adani Green share price is too volatile at the moment due to the Hindenburg report.
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Green power space holds a lot of future space
As India transitions from fossil fuels to green fuels, the shares in the power sector hold a lot of promise. We have analysed the three companies' current performance and future potential: NTPC, Tata Power, and Powergrid. While these companies are expected to do well in 2023, many other companies in the listed and unlisted space are working on excellent clean power solutions. Overall, the green power space holds a lot of promise for wealth creation and is India's future.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
