Top 5 Penny Stocks to Watch Out for in India's Booming Power Sector

After steady progress in 2023, India's power sector is buzzing with optimism as we step into 2024. The sector, fueled by an upsurge in demand and a renewed focus on renewables, is poised for continued growth.

The country's ambitious green goals are attracting significant investments in solar, wind and other clean sources, which not only benefit the environment but also spark innovation and job creation. This offers investors with a great opportunity to partake in this investment megatrend.

However, a crucial question remains: how to capitalize on this thriving sector?

Enter penny stocks.

Penny stocks, known for their rapid ascent, have the potential to become multi-baggers in a short period. Their high volatility is driven by liquidity and news flow, where a single announcement can propel a stock to new heights or trigger a sudden collapse.

However, careful selection, focusing on companies with strong fundamentals, can help navigate these fluctuations and unlock significant returns.

Here are five penny stocks you can add to your watchlist.

#1 CESC

First on our list is CESC.

CESC is an integrated power utility boasting a total capacity of 2,143 megawatts (MW).

The company generates and distributes electricity across 567 square kilometres of its licensed area in West Bengal, catering to over 4 million (m) clients.

Apart from this, CESC, through its subsidiaries, has a portfolio of independent power generation projects and distribution ventures in other parts of the country.

A majority of the company's capacity (95%) is under long/medium-term PPAs with fuel security which guarantees a predictable revenue stream with fixed electricity prices, shielding it from volatile fuel costs while minimizing default risk.

This translates to smoother cash flow, reduced financial volatility and stronger investor confidence, all of which empower CESC to make strategic decisions and fuel future growth with remarkable stability.

While coal-fired power plants remain CESC's core business, the company is actively diversifying its portfolio to renewable energy. It is acquiring land for setting up a solar-wind hybrid portfolio in Gujarat.

Its subsidiary has won a bid to build India's largest green hydrogen plant (10,500 tonnes/year) under a government scheme. This innovative project, a first for the RP-Sanjiv Goenka Group (CESC's parent), will utilize renewable energy to produce clean hydrogen fuel.

CESC's green hydrogen venture signifies its commitment to sustainability and future-proofing its business. This strategic move positions the company for long-term growth in the growing energy landscape, balancing its strengths with exciting green technology advancements.

CESC Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	2.10%	14.10%	-4.00%	7.60%	13.40%
Operating Profit Margin (%)	29.30%	28.50%	30.40%	26.40%	18.10%
Net Profit Margin (%)	10.60%	10.80%	11.70%	11.20%	9.80%
Return on Capital Employed(%)	14.00%	13.90%	13.10%	12.90%	11.90%
Return on Equity (%)	13.00%	14.20%	14.10%	13.90%	13.10%

Data Source: Ace Equity

Between 2019-2023, the business has grown, with the sales and net profit growing at a compound annual growth rate (CAGR) of 6.4% and 8.6%, respectively. The return on equity (RoE) and return on capital employed (RoCE) have reported a 5-Yr average of 13.6% and 13.2%, respectively.

The stock is trading at a price to book value ratio (P/BV) of 1.4x, a 40% premium to its 5-year P/BV of 1x.

To know more about the company, check out its financial factsheet and latest quarterly results.

#2 NHPC

Next on our list is NHPC.

NHPC is India's leading hydroelectric generation firm. The company supply's substantial power to utilities across eastern, northern and north-eastern regions through long-term Power Purchase Agreements (PPAs). It boasts a total capacity of 7,000 MW, filling the gap during peak demand periods when solar power falls short.

Recently, the company announced a joint venture (JV) agreement between NHPC and Andhra Pradesh Power Generation Corporation.

The JV is for the implementation of pumped storage hydropower projects and renewable energy projects in Andhra Pradesh.

NHPC Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	12.10%	9.40%	0.70%	-3.30%	11.40%
Operating Profit Margin (%)	65.80%	63.40%	66.80%	67.90%	65.90%
Net Profit Margin (%)	31.60%	33.40%	37.30%	41.30%	39.90%
Return on Capital Employed(%)	10.30%	7.90%	9.10%	6.50%	9.00%
Return on Equity (%)	9.30%	10.80%	11.20%	11.10%	11.80%

Data Source: Ace Equity

Between 2019-2023, the company reported a CAGR of its revenue and net profit of 5.9% and 11.4%, respectively. The 5-Yr average RoE and RoCE stand at 10.8% and 8.5%, respectively.

Looking ahead, the company has outlined a massive capex outlay for doubling the installed 7,000 MW capacity by financial year 2027. The company has guided for a capex of Rs 90-100 bn for the next 10 years.

The stock is trading at a P/BV of 2.2x, a 175% premium to its 5-year P/BV of 0.8x.

To know more about the company, check out its financial factsheet and latest quarterly results.

#3 Urja Global

Third on our list Urja Global.

Urja Global boasts a comprehensive portfolio in the battery market, including lithium batteries, automotive batteries, inverter batteries and solar batteries. The company has a diverse product range in the consumer goods market including batteries, solar batteries, e-rickshaws and e-scooters.

Furthermore, it offers a range of solar solutions including solar study lamps, LED lanterns, solar panels, inverters, solar home lighting systems, solar atta chakki, solar water pumps and solar rooftop systems.

The corporation has deployed solar-powered street lights in numerous Gram Panchayats throughout India. Additionally, it has established solar photovoltaic (PV) installations across the nation.

Urja Global Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	2.70%	19.40%	-8.20%	-50.90%	-44.40%
Operating Profit Margin (%)	1.20%	1.80%	2.10%	2.80%	8.10%
Net Profit Margin (%)	0.00%	0.70%	1.20%	1.10%	3.90%
Return on Capital Employed(%)	0.80%	1.60%	1.70%	1.00%	1.60%
Return on Equity (%)	0.00%	0.70%	1.10%	0.50%	0.90%

Data Source: Ace Equity

Despite a robust product portfolio, the company has faced challenges in its performance over the past five years.

Both sales and net profit have experienced a downward trend, and the return ratios have been dismal.

Additionally, a big red flag is that the auditors have raised concerns regarding the company's internal financial controls concerning financial reporting as of 31 March 2023.

These concerns entail uncertainties surrounding the realization of trade receivables, lack of maintenance/updating of fixed assets register including capital work in progress, loans and investment register for agreements or contracts with related parties, absence of documentary evidence for loans and advances provided, etc.

The company has discontinued the sale of unprofitable and low-end appliances to focus on high-value products and volumes, with a goal of sustained growth and market relevance. Furthermore, it is committed to expanding its presence in existing segments through improved distribution strategies.

However, the discrepancies highlighted in the auditor's report raise notable apprehensions, underlining key considerations when investing in stocks of lower value.

To know more about the company, check out its financial factsheet and latest quarterly results.

#4 SJVN

Fourth on our list is SJVN.

SJVN, jointly held by the government of India and the government of Himachal Pradesh, is in the business of power generation and engineering consultancy.

The company is majorly into hydropower production, pumped-storage power plants and wind & solar power. Over the years, it has built a sizable presence with its six installed plants across Arunachal Pradesh, Uttarakhand, Himachal Pradesh and Nepal.

The hydro major boasts a generation capacity of 2,091 MW, of which 1,912 MW (approximately 91.4%) is derived from hydroelectric power and Pumped Storage Power (PSP). Solar and wind energy represent smaller segments, contributing 81.9 MW (around 3.9% share) and 97.6 MW (approximately 4.7% share) respectively. Additionally, SJVN manages an 86 km-long power transmission line.

Last year, the company, aiming to foraying into solar and wind energy sectors, established a subsidiary called SJVN Green Energy.

SJVN Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	18.50%	5.60%	7.70%	-25.80%	24.60%
Operating Profit Margin (%)	94.10%	99.90%	117.00%	83.10%	88.80%
Net Profit Margin (%)	51.70%	58.00%	66.20%	41.00%	46.30%
Return on Capital Employed(%)	15.50%	16.70%	15.20%	8.80%	9.10%
Return on Equity (%)	12.50%	13.50%	13.20%	7.60%	10.10%

Data Source: Ace Equity

Between 2019-2023, the sales and net profit have grown at a CAGR of 4.5% and 2.1%, respectively. The returns have been rangebound, with the RoE and RoCE averaging at 11.1% and 13.1% over 5 years.

Going forward, the company is aspires to diversify its business operations and establish a prominent presence in the clean energy sector.

As part of its proactive efforts to diversify into clean energy, SJVN has outlined an extensive plan to ramp up its capacity to 30,000MW by fiscal 2023 and 40,000MW by fiscal 2040. In fiscal 2024, the company aims to spend over Rs 100 bn on capex and Rs 120 bn in the following year.

The stock is trading at a P/BV of 3.4x, a 370% premium to its 5-year P/BV of 0.9x.

To know more about the company, check out its financial factsheet and latest quarterly results.

#5 India Power Corporation

Last on our list is India Power Corporation (IPCL).

IPCL is an integrated power utility, operating extensively throughout India. The generation capacity stands at 38.8 MW, comprising a 12 MW thermal power plant located in Asansol, West Bengal (31% share), 24.8 MW of wind assets situated in Gujarat (64%) and 2 MW (5%) of solar assets in West Bengal.

IPCL serves the expansive region of West Bengal, with a distribution license spanning 798 square kilometres.

The company boasts an array of operations, harnessing renewable and traditional approaches for power production and distribution alongside advancements in smart metering and grid technologies.

India Power Corporation Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)		-20.50%	9.20%	10.90%	7.00%
Operating Profit Margin (%)	10.20%	15.30%	13.30%	10.20%	9.80%
Net Profit Margin (%)	2.90%	2.80%	5.00%	2.60%	2.50%
Return on Capital Employed(%)	8.70%	4.20%	3.30%	3.60%	5.10%
Return on Equity (%)	1.60%	0.90%	1.70%	1.20%	1.70%

Data Source: Ace Equity

Between 2019-2023, the company's revenues and net profit have been rangebound. The 5-Yr average RoE and RoCE stand at 1.4% and 5%, respectively.

IPCL manages wind farms through fixed lease payments, with all projects having secured long-term PPAs.

At present, it provides around 40% of its electricity from renewable sources. Going forward it aims to supply around 70% of power from renewable sources. This endeavour will entail several initiatives, such as procuring 100 MW of dependable solar power from the Solar Energy Corporation of India.

Additionally, IPCL plans to implement rooftop solar systems for industrial and commercial consumers within its licensed area, fostering distributed energy generation. Furthermore, the company is deeply interested in the Electric Vehicle segment and is bidding for the ACC Battery Storage PLI Scheme under the Ministry of Heavy Industries.

Currently, the stock is trading at a P/BV of 1.4x, a 155% premium to its 5-year P/BV of 0.9x.

To know more about the company, check out its financial factsheet and latest quarterly results.

In conclusion

The recent surge in power stocks has both intrigued and concerned investors. While the sector's past track record of disappointing performance has been a cause for caution, the current scenario seems different.

Power stocks, with a history of generous dividend payments, making them appealing to long-term investors. And there is no doubt the sector is undergoing a massive transformation.

But before jumping in, investors must stay up to date with the ever-changing market dynamics, government policies, and financial health companies, to make well-informed investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...