Buy 3 Power Sector Stocks Including 2 PSUs Stocks For Return Up To 46%, Says HDFC Securities

Leading brokerage firm HDFC Securities in its recently published report on the Power sector has maintained its "buy" call to 3 stocks of the sector. Among the 3 stocks, 2 are Public Sector Undertaking (PSU) stocks namely NTPC & NHPC whereas one is RP-Sanjiv Goenka Group's CESC Limited. According to HDFC Securities, the stock has the potential to surge up to 46% from its current level considering the given target price to the stocks.

According to the brokerage, the power industry is expected to report 19.4% YoY earnings growth, owing to the ongoing spur in power demand and merchant rates, which continued in Q2FY23 as well. However, demand growth softened to ~5% YoY during Q2FY23 (vs ~17% YoY in Q1FY23) due to high YoY base and monsoon season. Coal inventory at power plants improved significantly as the number of stations facing subcritical inventory levels declined to 54 in Q2FY23, vs 88 YoY and 79 QoQ. Accordingly, power deficit normalised to 0.3% in Q2FY23 vs 1% QoQ and merchant rates also declined 29% QoQ to INR5.4/unit but was up 31% YoY.

"Revenue for our coverage universe is likely to improve by 23.4% YoY. We remain positive on regulated entities like NTPC, CESC and NHPC trading at a comfortable valuation, which are expected to see better earnings on the back of improved demand and availability," the brokerage has said.

Here are the details of the stock and the comment by the brokerage firm:

NTPC Limited

NTPC Limited is a PSU Maharatna company under the Ministry of Power, Government Of India. It is India's largest power utility with an installed capacity of 70,084 MW (including JVs), plans to become a 130 GW company by 2032. It is a large-cap power sector company having a market cap of Rs 1,63,340 crore.

The brokerage has maintained its "buy" rating on the stock with an upgraded target price of Rs 185 per share. It sees a potential gain of 10% from its current level considering the given target price to the stock.

On 17 Oct', Monday, the stock last traded at Rs 168.45 per share, gaining 2.03% from its previous close. The stock in the past 1 week surged 2.74%. It has given positive returns of 12.75% in 1 year, 41.91% in 3 years and 14.92% in 5 years, respectively.

According to the brokerage firm, Generation is expected to increase 7.7% YoY to 80.5bus, as peak summer demand saw some conformity during the monsoon period. Realisation is expected to rise 14.3% YoY, led by a rise in fuel cost, which would increase the topline by 23.6% YoY and PAT by 5.4% YoY. Both PLF and PAF are expected to improve during Q2FY23, led by improved demand and coal availability.

NHPC Limited

NHPC Limited is a PSU Miniratna- Category 1 company under the Ministry of Power, Government Of India. NHPC Limited is the largest organisation for hydropower development in India, with the capabilities to undertake all the activities from conceptualization to commissioning in relation to setting up of hydro projects. NHPC Limited has also diversified in the field of Solar & Wind power. NHPC Limited presently has an installation base of 7071.2 MW from 24 power stations including two no's projects in JV mode. It is a mid-cap power sector company having a market cap of Rs 39,527.21 crore.

The brokerage has maintained its "buy" rating on the NHPC stock with an estimated target price of Rs 41 per share. According to the brokerage's given target price, the stock is likely to surge 5% from its current level.

On 17 Oct', Monday, the stock last traded at Rs 39.35 per share, gaining 3.83% from its previous close. The stock in the past 1 week surged 3.28%, whereas, in the past 3 months, it gained 13.73%. It has given positive returns of 27.35% in 1 year, 68.88% in 3 years and 38.31% in 5 years, respectively.

According to the brokerage, the company is expected to print a flat quarter YoY, with a marginal rise of 3.5% in revenue, driven by overall decrease in generation. PAT is also expected to remain flat YoY at INR13.1bn in Q2FY22. The key aspects to watch out for: (1) progress across Parbati II and Subansiri projects; (2) outstanding dues across discoms.

CESC Limited

CESC Limited is India's first fully integrated electrical utility company ever since 1899, generating and distributing power in Kolkata and Howrah. The company has private participation in generation, transmission, and distribution of electrical power. It is the sole distributor of electricity within an area of 567sq km of Kolkata, Howrah and adjoining areas and serve 3.4 million consumers which include domestic, industrial, and commercial users. With a market capitalisation of Rs 10,293.05 crore, it is a small-cap stock of the power sector.

The brokerage has maintained its "buy" rating on the CESC stock with an estimated target price of Rs 113 per share. According to the brokerage's given target price, the stock is likely to surge 46% from its current level.

On 17 Oct', Monday, the stock last traded at Rs 77.65 per share, down 1.02% from its previous close. The stock in the past 1 week fell 3.24%, whereas in the past 3 months, gained 4.72%. It has given negative returns of 17.17% in 1 year, 1.74% in 3 years and 25.24% in 5 years, respectively.

According to the brokerage, Standalone revenue is expected to increase by 11.1% YoY to INR23bn, led by ~7-8% rise in demand across its Kolkata license area. "We expect PAT to remain largely flat on YoY basis at INR2.2bn. Dhariwal is expected to report improved earnings on the back of commissioning of the three year mediumterm PPA with the Railway Energy Management Co (REMCL) to supply 210 MW of power at a tariff of INR4.1/unit. With commercial centers opening up, losses across its franchisee divisions (especially Kota) are expected to decline," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.