“BUY” This Maharatna Power Sector Stock For 29% Gain: HDFC Securities

Company’s performance

In its research report, the brokerage has stated that "NTPC's power generation grew steeply by 11.3% YoY to ~23.0bn units, with an 11.9% YoY rise at coal plants, which was partially offset by a 22.2% YoY decline in generation at the gas-based plants. Generation across its Hydro station was up 15.7% YoY during Nov-21. Generation, however, fell significantly at the Tata Power stations (-32.1% YoY), Adani Power (-55.6% YoY) and JSW Energy (-27.3% YoY) due to lower generation across their imported coal-based stations on rising coal prices. Generation also fell across the CESC (-14.7% YoY) and GIPCL (-19.4% YoY) due to subdued power demand. However, generation increased for NHPC (+17.4% YoY) and SJVN (+13.7% YoY) due to better water availability."

According to HDFC Securities "NTPC's generation remained strong with 11.3% YoY increase in Nov-21. However, it fell significantly across the stations of Tata Power (-32.1% YoY), Adani Power (-55.6% YoY), and JSW Energy (-27.3% YoY) due to lower generation across their imported coal-based stations on rising coal prices. Generation also fell at CESC (-14.7% YoY) and GIPCL (-19.4% YoY) due to subdued power demand. However, it increased for NHPC (+17.4% YoY) and SJVN (+13.7% YoY) due to better water availability."

The brokerage’s take

The brokerage in its research report has claimed that "Given the onset of winter and muted power demand, generation growth remained subdued in Nov-21 at 2.1% YoY. During MTD Dec-21 as well, demand growth has been low at 2% YoY. Lower power demand and improved coal supply led to a 1.5x increase in coal stocks across stations compared to the critical Oct-21 level. Coal dispatches to the power sector surged by 39.3% YoY to 60.3 MT on Nov-21. The base/peak deficit fell to 0.2%/0.6% in Nov-21 vs 1.1%/3.2% MoM, which led to a 62% MoM fall in merchant rates in the same month to INR3.1/unit. As of Dec-21, discoms' outstanding dues had risen to INR990 bn (-22% YoY but +2% MoM). While the Centre has dropped the DBT scheme from the proposed bill, other reforms like delicensing and smart metering can be the silver lining that will revive the sector. NTPC, PGCIL, and CESC are our top picks."

HDFC Securities has also said in its research report that "While the overall demand/generation increased 10.7%/10.2% YoY each in YTDFY22, we expect power demand to rise 12% in FY22, led by the country's improved economic activity. The proposed Electricity Amendment Bill 2021 is now delayed as the Centre has dropped the DBT on power subsidies from the same, besides dropping the provision of creating a new Electricity Contract Enforcement Authority". However, with CCEA approving the INR3.03 trn reform-linked package, we can expect improved infrastructure Capex from discoms over the next 3-4 years. This would, in our view, lower AT&C losses, nullify the ACS-ARR gap, and promote private participation in the discom space."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.