Ahead of the Q4FY22 results, brokerage company ICICI Securities has focused on the power sector, selecting NTPC for a target price of Rs 196, Coal India for a target price of Rs 234, NHPC for a target price of Rs 45, and Genus Power for a target price of Rs 117 as top picks with buy ratings.
The brokerage has said that "Growth in domestic power demand during Q4FY22 boosted generation volumes and power purchase by discoms although rise in international coal and gas prices is expected to be a dampener for plants dependent on such fuels. All-India power demand was up 2% YoY during the quarter despite a higher base. Thermal PLF averaged 64% in Q4FY22 leading to 9.6% YoY increase in Coal India's (CIL) offtake to 180mnte. Daily peak power demand for Q4FY22 averaged 187GW (vs 179GW in Q4FY21)."
"During 1-12th Apr'22, average daily peak demand was >194GW - of which, >140GW was consistently catered by thermal power. Higher power demand and all-time high international coal prices will continue to aid offtake growth for CIL, and boost PLFs of thermal plants of NTPC and others with domestic coal linkages. Power demand, billing and collection improved at all distribution areas and learnings from past lockdowns and smart meter installations will help discoms tackle upcoming disruptions, if any. NTPC, CIL, NHPC and Genus Power remain our top picks," the brokerage has further claimed.
Recommendations and key risks according to ICICI Securities
- For the shares of Coal India, the brokerage has said "We maintain our BUY rating on CIL and our target price of Rs234/share. We remain structurally positive on the stock, valuing it on DCF basis with peak production of 850mnte FY29E onwards. The stock is currently trading at 5.8x P/E and 2.2x EV/EBITDA on FY24E basis with 38.4% RoE." Weakness in power sector leading to lower volumes, weakness in international coal prices (impacting sentiment and making imported coal more competitive vs domestic coal), and natural disasters impacting volumes are the key risks of the stock.
- For the shares of NTPC, ICICI Securities has highlighted that "We maintain our BUY rating with an unchanged SoTP-based target price of Rs196/sh and FY24E standalone / consolidated EPS of Rs19.2 / Rs20. NTPC is currently trading at FY24E standalone P/BV of 1x (P/E of 8x) and FY24E consolidated P/E of 7.3x." Delay in capitalisation of assets leading to lower capital efficiency, and lower-than-expected utilisation due to weak demand resulting in lower incentive income remains the key risks for the stock.
- For the shares of NHPC, the brokerage has claimed "We maintain our BUY rating and target price of Rs45/share. NHPC is trading at 6.9x P/E and 0.8x P/B on FY24E basis. Its dividend yield is 5.5%. We believe the company will be able to maintain its dividend payouts as per the DIPAM guidelines, despite the planned capex (as free cashflow is expected to significantly increase once the 2,800MW capacity currently under construction becomes operational by FY24E)." Delay in project commissioning, disallowance of project capex leading to lower profit, and any adverse regulatory changes by CERC lowering the regulated the company's RoE in 2024-29 regulations are the key risks of the stock.
- For the shares of Genus Power, ICICI Securities has stated that "We maintain our BUY rating on Genus Power valuing it at 20x FY24E EPS of Rs5.8/share with a target price of Rs117. At CMP of Rs72/share, the stock is trading at 11.8x P/E and 1.8x P/B on FY24E basis." Further lockdowns affecting project implementation and supply chains, slower than anticipated pickup in tendering activities, significant increase in commodity prices are the key risks of the stock.
Power Stocks To Buy
|Company||Recommendation||Target Price (Rs/sh)|
|Source: ICICI Securities. Data as of April 15, 2022|