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With surging electricity demand and a governmental drive towards renewable energy, the BSE Power index closed at a lifetime high on Friday, gaining by over 86 per cent in FY24. This has positioned the power sector among the top five best-performing sectoral indices, outpacing the S&P BSE Sensex, which returned 25 per cent. Notably, recent developments from the Central Electricity Regulatory Commission (CERC), retaining the majority of the draft tariff norms for 2024-29, underscore the sector’s favourable regulatory environment, particularly benefiting power generation entities. Here are some power stocks with returns ranging between 92 and 180 per cent, that likely contributed to the sector rally.
Top performers
Adani Power, India’s largest private thermal power producer, emerged as the standout performer, trading at a P/E (TTM) of 22. Adani Power’s fortunes improved due to the resolution of regulatory issues, and receipt of past regulatory claims as noted by credit rating agency ICRA. The company aims to expand its thermal power capacity by nearly 6 GW, propelling its overall capacity to surpass 21 GW over the next five years, as per its investor presentation.
During 9MFY24, Adani Power reported a revenue growth of 44 per cent YoY while the PAT has increased more than threefold on account of higher revenue from the Godda thermal power plant (commissioned in Q1FY24) and lower import fuel cost.
Moreover, the renewable energy arm of Adani Group, Adani Green Energy is steadfast in its ambition to achieve 45 GW capacity by 2030, with recent milestones of surpassing the 10 GW installed capacity mark in the last week. In FY24, the stock price has more than doubled, in sync with revenue and PAT growth of 36 and 104 per cent, respectively.
Following them, NHPC, with a 15 per cent share of the nation’s hydro-electric capacity, has surged over 123 per cent in FY24, despite challenges stemming from diminished power generation due to constrained water availability and adverse weather conditions in some parts of Himachal Pradesh. Undeterred, NHPC is diversifying its operational portfolio by commissioning solar and wind power plants. The company currently has an installed capacity of around 7,097 MW (hydropower comprises 98 per cent) while it’s constructing around 10,449 MW capacity, with 3,135 MW dedicated to solar power.
Private power utility companies JSW Energy and Tata Power, trading at TTM P/E of 66 and 40 times respectively, have seen their stock price jump by 120 per cent and 108 per cent in FY24, respectively, driven by new renewable energy capacity additions. JSW Energy has reported a 12 per cent YoY increase during the 9M FY24 on account of higher net power generation. In comparison, Tata Power registered 8 per cent YoY growth and also faced operational cost escalations. Notably, Tata Power’s dominant market share in the rooftop solar segment positions it to capitalise on the opportunities presented by PM Surya Ghar Muft Bijli Yojana announced in Budget 2024.
The PSU thermal major NTPC’s stock has gained 92 per cent in FY24 underpinned by significant improvement in operations and substantial capacity additions in both thermal and renewable energy segments while the revenue saw a marginal decline of 0.7 per cent during 9MFY24. It currently trades at a TTM P/E of 20 times.
Outlook
Looking ahead, the Central Electricity Authority (CEA) forecasts power demand to escalate to 260 GW by the upcoming summer and a staggering 366 GW by 2032. In response, the government has intensified its focus on augmenting incremental thermal capacity to bolster energy security while also pursuing the ambitious target of achieving 500 GW of installed generation capacity from renewable sources by 2030, signalling a decisive shift towards green energy. Moreover, the directive for imported-coal based (ICB) power plants to sustain full-capacity operations until September 2024 is anticipated to further buoy the sector’s growth trajectory, amplifying the optimism surrounding power sector entities.
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