Top 5 Power Companies in India by Growth

Power is the backbone of any modern economy, fuelling industry and powering homes and businesses. In India, where a rapidly growing population and economy are driving demand for electricity, the power sector is more important than ever.

However, India's per capita consumption is lower than a third of the global average.

With a rising population (India recently surpassed China to become the most populous country!) and government's focus on green energy, the demand for power is expected to grow threefold by 2040. This gives a great opportunity for growth in the power sector.

Currently, India draws majority of its power needs from conventional sources like coal. This will soon change as the government is taking measures to increase the installed capacity of renewable energy and has set a target of 500 gigawatts (GW) by 2030.

This bodes well for power stocks in India. But with so many companies vying for a piece of the pie, which ones are leading the way in terms of growth?

In today's article, we'll take a look at the top 5 power companies in India that are driving the industry forward and shaping the future of energy.

These five power stocks rank at the top in terms of growth in sales and profit.

#1 Indian Energy Exchange (IEX)

First on the list is Indian Energy Exchange.

With around 95% market share, the company enjoys monopoly and rules the energy exchange market in India.

A new player, Hindustan Power Exchange (HPX), entered market in 2022 threatening IEX's monopoly. However, IEX has several growth plans which might help the company retain its leadership.

To diversify and meet renewable energy targets, the company has extensively included renewable energy in its portfolio by introducing green energy trading and issuing renewable energy certificates (REC) to renewable energy providers.

It plans to increase the share of green energy trading to 25% by 2024 from its current level of 7%. For this, the company is already working on increasing the renewable energy capacity addition on its platform.

It is also exploring options to implement hedging through a virtual power purchase agreement (VPPA) on its exchange.

There's more. With growing prosumers (consumers who produce and consume), IEX is exploring P2P opportunities in energy trading.

The growth plans don't stop here. IEX has set up India's first gas exchange and carbon exchange through its subsidiaries. It also plans to set up India's first coal exchange.

All this shows that the company is poised for its next leg of growth.

Coming to financials, in the last five years, the company's revenue has grown at a compound annual growth rate (CAGR) of 13.6% on the back of high trading volumes. The net profit also grew by a CAGR of 18.5%.

It enjoys a high return on equity (RoE) and return on capital employed (RoCE) of 44.6% and 58.9%, respectively, as of 31 March 2022.

Additionally, IEX is a debt-free company with an interest coverage ratio of 205.5x in 2022, indicating a strong credit profile and high liquidity.

Indian Energy Exchange Financial Snapshot (2018-2022)

Particulars (Rs m)	FY18	FY19	FY20	FY21	FY22
Total Revenue	2,561	2,942	2,974	3,562	4,844
Growth		14.90%	1.10%	19.80%	36%
Operating Profit	1,849	2,028	2,022	2,506	3,696
Operating Profit Margin	80.20%	79.80%	78.60%	78.90%	85.80%
Net Profit	1,317	1,650	1,757	2,054	3,072
Net Profit Margin	57.10%	65%	68.30%	64.60%	71.30%

Source: Equitymaster

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

#2 Tata Power

Second on the list is a Tata group company.

Tata Power is engaged in the business of power generation, transmission, and distribution through conventional and renewable sources.

The company has an installed capacity of 8,860 megawatts (MW) of conventional energy and 5,125 MW of renewable energy as of September 2022.

Of the total capacity, 63% conventional and 37% renewable energy.

Tata Power also manufactures solar panels and is setting up electric vehicle (EV) charging stations across the country.

In the last three years, the company's revenue has grown at a CAGR of 13.2%, driven by the solar and renewable energy businesses. The net profit also grew by 23.2% due to higher margins in the power generation business.

Tata Power Financial Snapshot (2018-2022)

Particulars (Rs m)	FY18	FY19	FY20	FY21	FY22
Total Revenue	272,738	307,432	303,502	336,786	439,229
Growth		12.70%	-1.30%	11%	30.40%
Operating Profit	69,648	81,183	72,673	68,934	69,394
Operating Profit Margin	25.90%	27.20%	24.70%	21.10%	16.20%
Net Profit	11,287	13,297	3,639	6,115	6,806
Net Profit Margin	4.20%	4.40%	1.20%	1.90%	1.60%

Source: Equitymaster

The company announced a massive Rs 750 billion (bn) capex to increase the share of renewable energy in its portfolio to 60% by 2027, taking the total installed capacity to 30,000 MW.

It also plans to set up around one lakh EV charging stations by 2026 to support the EV revolution and invest Rs 30 bn in setting up a 4-gigawatt (GW) solar plant in Tamil Nadu.

Although the growth strategy of the company looks rosy, its debt-to-equity ratio is around 1.5x, and the interest coverage ratio is 1.3x for the financial year 2022.

With such huge capex, the debt can go up. A high debt on the books can increase the company's credit risk. That is why many believe Tata Power share price is falling in the current markets.

However, the company has long-duration power purchase agreements (PPAs) for its generation and distribution business, offering strong revenue visibility.

Moreover, being a part of the cash-rich Tata Group, funding growth projects should not be a concern.

Going forward, the company's growing renewable portfolio and solar business is expected to drive revenue and profitability.

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

#3 NTPC

Third on the list is the largest power company in India, NTPC.

This government-owned organisation generates and sells bulk power to power utilities.

With an installed capacity of 69 GW as of March 2022, the company has 17% of India's total power capacity across coal, hydro, solar, wind and gas-based sources. Of the total capacity installed, 2 GW is renewable energy.

Apart from power, the company has ventured into consultancy, project management services, coal mining, and oil and gas exploration.

In the last five years, the company's revenue has grown by 8% on a CAGR basis, driven by higher generation of electricity. The net profit also grew at a CAGR of 9.7% due to high operational efficiency driven by close proximity to the coal mines and pitheads, reducing transportation costs.

Its debt-to-equity ratio is 1.3x, and its interest coverage ratio is 3.2x for the financial year 2022, indicating an element of risk.

However, the company's RoE and RoCE have been improving over the years, and the five-year averages stood at 10.9% and 8.6%, respectively.

NTPC Financial Snapshot (2018-2022)

Particulars (Rs m)	FY18	FY19	FY20	FY21	FY22
Total Revenue	915,668	1,008,575	1,154,126	1,157,871	1,346,767
Growth		10.10%	14.40%	0.30%	16.30%
Operating Profit	223,694	224,762	315,359	322,298	396,379
Operating Profit Margin	25.90%	22.80%	29.30%	29.50%	30.50%
Net Profit	100,565	133,623	114,966	142,855	159,402
Net Profit Margin	11.70%	13.60%	10.70%	13.10%	12.30%

Source: Equitymaster

NTPC has set a target of achieving 60 GW of renewable capacity by 2032. In line with its goal, it is setting up a 4.7 GW renewable energy park in Gujarat.

The company is also setting up its first green hydrogen fuelling station in Leh, making Leh the first city in India to implement a green hydrogen-based mobility project.

Going forward, high demand for electricity, growing share of renewables, and cost-plus tariff structure will drive its revenue and profit growth.

To know more about NTPC, checkout its factsheet and latest quarterly results.

#4 Power Grid Corporation of India

Next on the list is another monopoly stock, Power Grid Corporation of India.

From humble beginnings in 1989, it has grown to become the largest power transmission company in India.

By carrying electricity through its nationwide grid network, it acts as a connecting factor between power-generating companies and power-trading companies.

It is also engaged in the planning, implementation, operation, and maintenance of strategically important projects of the government.

Power Grid owns and operates 74,109 telecom networks as of March 2022. The company also ventured into EV charging infrastructure and is setting up charging stations across the country.

In the last five years, Power Grid's revenue has grown at a CAGR of 7%. The net profit grew by 15.4% on CAGR basis on the back of cost-plus tariff structure.

Power Grid Financial Snapshot (2018-2022)

Particulars (Rs m)	FY18	FY19	FY20	FY21	FY22
Total Revenue	304,305	357,764	386,717	410,468	426,988
Growth		17.60%	8.10%	6.10%	4%
Operating Profit	295,490	278,194	347,780	344,907	394,350
Operating Profit Margin	98.60%	79.30%	92.10%	87%	94.80%
Net Profit	82,040	100,335	110,594	120,365	168,241
Net Profit Margin	27.40%	28.60%	29.30%	30.40%	40.40%

Source: Equitymaster

To meet the growing power demand, the company plans to invest Rs 4.8 bn in three transmission projects.

Currently, the company's debt is 1.5x, and its interest coverage ratio is 3.4x. Though this looks slightly higher, the company's capitalisation and monetisation of transmission assets are helping it re-deploy capital to build new transmission assets.

For the financial year 2022, its RoE stood at 22.1% against 17.2% a year ago. Its RoCE also improved from 12% to 14.5%.

The company also has a history of paying regular dividends. Its five-year average dividend yield is 5.1%.

Going forward, growth in renewable energy capacity, EV charging network, and 5G telecom is expected to drive Power Grid's revenue and profitability.

To know more about Power Grid, checkout its factsheet and latest quarterly results.

#5 Nava Bharat Ventures

Last on the list is Nava Bharat Ventures, a relatively small company compared to other power companies.

Nava Bharat is engaged in several businesses, including manufacturing metals, power, mining, agribusiness, and healthcare.

It has a power generation capacity of 434 MW across five plants in India as of September 2022, which it uses for both captive and commercial use.

The company also operates Zambia's only integrated thermal power plant with an installed capacity of 300 MW which can be increased to 600 MW through a brownfield expansion.

An ideal mix of both captive power and independent power drives the energy segment's revenue.

In the last five years, the company's revenue has grown at a CAGR of 8.6%, driven by growth across all business segments. Its net profit also grew at a CAGR of 15.3%.

The debt-to-equity ratio stands at 0.4x, and its interest coverage ratio is 3.6x in the financial year 2022, indicating a good credit profile. With no heavy capex planned, the company's debt levels are expected to go down further.

Its RoE is 11.4%, as against 8.2% five years ago. RoCE has also improved from 9.4% to 18% over the last five years.

Nava Financial Snapshot (2018-2022)

Particulars (Rs m)	FY18	FY19	FY20	FY21	FY22
Total Revenue	24,172	31,818	30,097	27,975	36,454
Growth		31.60%	-5.40%	-7.10%	30.30%
Operating Profit	7,930	13,147	10,840	10,705	12,246
Operating Profit Margin	33.80%	42.50%	37.60%	42%	36.60%
Net Profit	2,780	3,390	5,308	5,545	5,658
Net Profit Margin	11.80%	11%	18.40%	21.80%	16.90%

Source: Equitymaster

Going forward, the company's operations in Zambia are expected to drive revenue and profit growth, given that it is the only power plant present in the region.

To know more about Nava, checkout its factsheet and latest quarterly results.

Why should you include power stocks in your portfolio?

India's power consumption is on the rise. And renewable energy has the potential to play a significant role in this.

The government has already taken steps to reduce the dependence on coal and increase renewables in the energy mix.

This coupled with the rising population, government initiatives to make India a manufacturing hub, growing demand for cleaner energy sources, and adoption of EVs will further drive this growth.

Check out how the EV revolution is helping power sector stocks in the below video.

All this shows that the power sector is all powered up for growth.

However, you shouldn't overlook the fact that power stocks are vulnerable to market risks.

From an investment perspective, they should be treated like any other stocks and require the same amount of due diligence.

Happy Investing!

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...