Top Power Stocks With High Dividend Yields; Jefferies Like NTPC, Coal India, 2 Others In 2024; Why BUY?

Leading global brokerage, Jefferies finds the power sector attractive with a growth trajectory strong for coming years. Jefferies expects the sector's demand to grow 7% cagr, and thermal power plant operating rates (PLF) should reach an all-time high of 80%+ in FY25E. Following this, Jefferies has picked four power stocks that have powerpack potential with high dividend yields to buy in 2024. These are NTPC, Coal India, JSW Energy, and Power Grid.

In its research note, Jefferies said that growth in the power sector (generation and T&D) capex is expected to jump 10x during FY24E-30E vs FY17-23. NTPC, Power Grid, Coal India and JSW Energy are our top picks from the perspective of the multiple rerating. Coal India could surprise on the volume growth leading to EPS surprise on the positive."

Jefferies power demand estimates of 7% CAGR in FY23-30E factors residential and manufacturing-linked demand, data centres, and other industries witnessing similar demand to that of FY04-10, which was the last capex upcycle. Thermal plants are running at 75-78% PLF annually on average, below potential peak levels of 80-85%.

However, peak deficit periods are on the rise, with current thermal utilisation close to an all-time high of 80%+. Capacity
addition acceleration is critical for ensuring regular deficit periods do not begin FY26E onwards. The government's 450 GW Renewable Energy (RE) capacity target by 2030 should see India setting up at least 308 GW RE by then, it added.

Also, Jefferies believes that all-India power generation capacity needs to move to 665 GW by FY30 from 416 GW in FY23 to avoid regular power deficit and should drive Thermal capex. Thermal power capex is key to enhancing baseload power supply in the evenings and the night when solar is not active. India has ample coal reserves but the mining activity needs a step up to meet the demand. Last 3 years volume growth for Coal India was c.10% cagr. If the same thing gets repeated over the next 2, it would be a positive surprise.

Further, Jefferies highlighted that Power Grid on its call mentioned that Rs597 bn bids are in the tendering stage and another Rs670 bn is expected to be added. Power Ministry simplifying approval processes is helping speed up awards. A material share for this is linked to green energy corridors to support RE addition.

Adding it said, "We expect the earnings growth for Power Grid and NTPC, however, will stay subdued over the next 2 years. NTPC's earnings growth should revive beyond FY26."

Lastly, the brokerage's note added, "We believe the current backdrop increases the probability of regulated ROE being stable or 50 bps cut at most. Any ROE reduction reduces available equity cash flows for investment. 10-year G-sec rates were 7.2% vs 7.8% when the previous regulated ROE document was published. This augurs well for NTPC (Buy) and Power Grid (Buy) in a regulated business. On competitive bidding, given access to the lowest rates, they are in a better position to generate profitable growth. JSW Energy (Buy) should benefit from timely commissioning of 700 MW merchant power plant and renewables rising to 81% of capacity from 52% over the next 5-7 years."

On January 2nd, Coal India shares touched a new 52-week high of Rs 395.80 apiece, while its yearly gains of more than 75% on BSE. Also, Power Grid touched a new 52-week high of Rs 240.35 apiece before ending flat and has recorded an upside of over 47% in a year.

On the other hand, on Tuesday, JSW Energy and NTPC shares dipped however stayed closer to their 52-week high levels. In a year, NTPC shares have zoomed by over 83% and JSW Energy gained over 41%.

These four stocks have paid huge demand, and some of them have high dividend yields. In 2023, NTPC paid dividends up to 95% amounting to Rs 9.5 per share, and has a dividend yield of 2.37%. Meanwhile, Power Grid paid up to 137.5% dividend valuing to Rs 13.75 per share, with a dividend yield of 7.89%, which is the highest yield among the four recommended stocks and also top in PSU stocks overall.

Coal India is also among the highest dividend yield stocks in PSU stocks to the tune of 6.14%. The largest coal producer backed by the government in the world has paid dividends up to 245% aggregating to Rs 24.5 per share in 2023.

Finally, JSW Energy shares paid up to 20% dividends in 2023 amounting to Rs 2 per share. At present, it has a dividend yield of 0.49%.