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  • Feb 9, 2024 - Top 10 Power Stocks to Watch Out for in India in 2024

Top 10 Power Stocks to Watch Out for in India in 2024

Feb 9, 2024

Top 10 Power Stocks to Watch Out for in India in 2024

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

This surge creates opportunities for expansion and investment, particularly in the renewable energy segment.

India's ambitious green goals are attracting significant investments in solar, wind, and other clean sources, not only benefitting the environment but also sparking innovation and job creation. This presents investors with a great opportunity to partake in this investment megatrend.

With that in mind, here are top 10 power stocks that must be on your watchlist.

#1 NTPC

First on our list is NTPC.

NTPC stands as India's leading power-generation utility, boasting an impressive installed capacity exceeding 71 gigawatts (GW). This powerhouse plays a pivotal role in the energy sector, supplying electricity to various utility providers across the nation.

The company provides 15% of the country's generating capacity and about 36% of domestic power generation. Some 81% of NTPC's capacity is coal-based with the other 9% from gas and 5% from hydro. Primarily coal-based, approximately 81% of NTPC's capacity relies on coal, with 9% sourced from gas and 5% from hydro sources.

The power giant is is steering towards a greener future, committed to the development of renewable energy in the country and its potential to decarbonize the energy sector. It is partaking in a variety of initiatives, from setting up India's first green hydrogen energy storage facility to working on green hydrogen derivatives. The company has made some headway in this by commissioning its first green hydrogen blending with piped natural gas project.

Looking ahead, NTPC's management has set ambitious targets, aiming for a capacity of 60GW solely from renewables by 2032. To support this vision, the company plans to ramp up its capital expenditure by 30-40%, leveraging a balanced mix.

NTPC Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 10.10% 14.40% 0.50% 16.30% 29.20%
Operating Profit Margin (%) 24.80% 36.00% 36.20% 33.30% 27.70%
Net Profit Margin (%) 14.00% 10.90% 13.40% 12.80% 9.70%
Return on Capital Employed (%) 6.50% 9.80% 8.30% 9.20% 9.80%
Return on Equity (%) 13.10% 10.40% 12.20% 13.00% 12.10%
Data Source: Ace Equity

Between 2019-2023, the business has performed well, with the sales and net profit clocking in a compounded annual growth rate (CAGR) of 13.5% and 10.3%, respectively. The company has the potential to earn a 15.5% regulated Return on Equity (RoE) until fiscal 2024. However, it's important to note that beyond this period, the rate of return will be subject to review by the government.

The stock is trading at a Price to Book Value ratio (P/BV) of 1.8x, a 63% premium to its 5-year P/BV of 1.1x.

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

#2 Adani Green Energy

Next on our list, we have Adani Green Energy.

Adani Green, one of the largest renewable companies in India, holds the largest solar power generation capacity globally. The company boasts an operational capacity of 5,290 megawatts (MW) of wind energy and solar power facilities in 11 Indian states.

It builds, develops and maintains utility-scale grid-connected solar and wind farm projects, generating power through renewable sources such as solar and wind energy.

Adani Green is setting up a 2,167 MW renewable energy park, anticipated to be the largest of its kind globally. This project perfectly aligns with its ambitious vision of reaching 45 GW of operational renewable capacity by 2030.

Adani Green Energy Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 41.80% 35.60% 27.60% 48.60% 64.30%
Operating Profit Margin (%) 79.60% 72.30% 91.70% 77.00% 80.90%
Net Profit Margin (%) -22.90% -2.40% 5.80% 9.50% 12.50%
Return on Capital Employed (%) 4.70% 8.40% 10.70% 7.80% 8.50%
Return on Equity (%) -47.30% -7.60% 22.40% 47.70% 27.50%
Data Source: Ace Equity

Between 2019-2023, Adani's business has expanded. The company's clean energy unit saw its installed capacity more than double in the past two years, with profits riding on the expansion. The returns, RoE and RoCE (Return on Capital Employed), have also been stable since.

While the business has grown at a fast rate, with the sales growing at a 5-Yr CAGR of 43%, it comes on the back of tremendous borrowings. Between 2019-2023, the debt has ballooned 5 times. The debt to equity in financial year 2023 was at 9.2x with a dismal interest coverage ratio of 1.4x.

However, recently the company sealed its largest project financing of US$ 1.36 billion (bn) (approxRs 11,300 crores) senior debt facility.

The funds will be utilized towards the development of its planned renewable energy park in Gujarat.

The company added the latest project finance as part of its Construction Financing Framework to enhance the funding pool to US$ 3 bn since the initial project financing in March 2021.

The stock is trading at a P/BV of 37x, a 32% discount to its 5-year P/BV of 54.6x.

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

#3 Power Grid

Third on our list is Power Grid.

Power Grid is India's largest electric power transmission company. By carrying electricity through its nationwide grid network, the company acts as a connecting factor between power-generating companies and power-trading companies.

The company also ventured into electric vehicle (EV) charging infrastructure and is setting up charging stations across the country.

To meet the growing power demand, the company plans to invest Rs 4.8 bn in three transmission projects, expanding the transmission network with a focus on interstate and intrastate projects. This aims to connect renewable energy sources, improve grid stability, and facilitate electricity trading. Looking ahead the company has laid out an extensive investment plan of Rs 1.8 trillion (tn) by 2032.

Power Grid Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 17.60% 8.10% 6.10% 4.00% 9.20%
Operating Profit Margin (%) 88.20% 89.70% 91.80% 90.50% 88.90%
Net Profit Margin (%) 28.60% 29.30% 30.40% 40.40% 33.80%
Return on Capital Employed (%) 9.20% 11.50% 11.20% 13.00% 13.00%
Return on Equity (%) 17.70% 17.90% 17.90% 23.00% 19.40%
Data Source: Ace Equity

Between 2019-2023, the business has grown, with the sales and net profit growing at a CAGR of 8.9% and 13.4%, respectively. The RoE and RoCE have reported a 5-Yr average of 19.6% and 11.6%, respectively.

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

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

The stock is trading at a P/BV of 3x, a 66% premium to its 5-year P/BV of 1.8x.

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

#4 Adani Power

Fourth on our list is Adani Power.

Adani Power, a key player within the Adani Group, stands as India's leading private thermal power entity, with a total installed capacity of 15,520 MW across six power plants. Renowned for pioneering the establishment of a coal-based supercritical thermal power plant in the country, the company boasts a diverse portfolio of both short-term and long-term power purchase agreements (PPAs) to facilitate power sales.

Adani Power's 81% of total capacity is contracted, most of which offer fuel cost pass through or tariff escalation, yielding excellent revenue visibility and cash flow stability.

The company has multiple short term, and long-term PPA to sell power. It accounts for 6% of the total capacity of power generation in India.

The company extends its influence into renewable energy, operating a solar plant in Gujarat alongside its thermal power assets.

Adani Power Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 25.00% 5.60% 1.10% 12.60% 35.80%
Operating Profit Margin (%) 31.10% 26.70% 40.40% 49.80% 36.90%
Net Profit Margin (%) -4.10% -8.60% 4.80% 17.70% 27.70%
Return on Capital Employed (%) 8.60% 5.20% 11.60% 16.00% 15.80%
Return on Equity (%) -327.20% 0.00% 23.10% 30.90% 44.20%
Data Source: Ace Equity

Adani Power has been leveraging technology to deliver high efficiency and gain a competitive edge in the power sector. Between 2019-2023, the business has grown, with the sales growing at a CAGR of 15%. Once the business churned out a profit in fiscal 2021, it has grown by about 8 times in fiscal 2023.

Adani Power have used leverage to fund their business. Adani Power has a debt-to-equity ratio of 2.5x and an interest coverage ratios of 2.6x in the financial year 2022. This clearly indicates its balance sheet is over-leveraged.

Looking ahead, the Gautam Adani-group power company has a target to raise the thermal generation capacity up to 21,110 MW by fiscal 2029, including 1,100 MW through an inorganic route.

The stock is trading at a P/BV of 5.4x, a 74% premium to its 5-year P/BV of 3.1x.

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

#5 Tata Power

Fifth on our list is Tata Power.

Tata Power has transformed into India's undisputed energy powerhouse. Its grip extends across the electricity value chain, including generation, transmission and distribution. The company boasts an installed generation capacity of 14 GW, of which 8.8GW is from thermal and the balance from clean and green energy sources such wind, solar and hydro.

Looking ahead, Tata Power aims to become the frontrunner in India's clean energy revolution. It is investing heavily towards this transition, building an expansive EV infrastructure and setting up EV charging stations across the country. The company is also present in consumer-centric businesses such as solar rooftops, pumps, microgrids etc.

Tata Power Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 11.10% -1.90% 11.50% 32.10% 29.20%
Operating Profit Margin (%) 23.90% 29.20% 22.80% 19.70% 16.60%
Net Profit Margin (%) 9.10% 5.90% 4.50% 6.10% 6.90%
Return on Capital Employed (%) 12.10% 10.20% 9.00% 10.10% 13.30%
Return on Equity (%) 17.20% 10.00% 7.60% 12.10% 14.90%
Data Source: Ace Equity

Between 2019-2023, the company's net sales and net profit have grown at a CAGR of 15.7% and 7.3%, respectively. Tata Power earns regulated returns on most of its power assets. The tariffs are determined by the state electricity regulators, or by long-term power-purchase agreements.

Looking ahead Tata power has outlined a Rs 600 bn capex up until 2027, 45% of which will be deployed towards renewable energy. This will be financed via a mix of debt and internal accruals.

While the power major's balance sheet has been heavily leveraged, it has undertaken effective steps to deleverage its balance sheet, visible from a drop in debt to equity ratio from 2.19 in fiscal 2019 to 1.02 as on September 2023.

The stock is trading at a P/BV of 4.2x, a 33% premium to its 5-year P/BV of 1.8x.

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

#6 Adani Energy Solutions

Sixth on our list is Adani Energy Solutions.

Adani Energy Solutions, earlier referred to as Adani Transmission, is a private sector power transmission and distribution company engaged in the business of establishing, commissioning, setting up, operating and maintaining electric power transmission systems in India.

It operates over 17,200 circuit kilo meters (km) of transmission lines across India and enjoys a wide-spread presence across 14 states. The company also constructs, operates and maintains transmission systems for renewable energy projects such as solar and wind power.

The company has been expanding rapidly through acquisitions and new project developments. It was committed to leading India's energy transition towards renewable energy sources.

Adani Energy Solutions Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 88.80% 53.30% -5.90% 13.60% 18.60%
Operating Profit Margin (%) 42.60% 40.10% 51.00% 48.80% 45.90%
Net Profit Margin (%) 7.70% 6.20% 13.00% 11.00% 9.60%
Return on Capital Employed (%) 10.00% 11.20% 10.90% 10.80% 10.50%
Return on Equity (%) 12.60% 14.30% 22.80% 19.10% 13.80%
Data Source: Ace Equity

The business has grown on the back of a mountain of debt in the last few years. This is visible in the sales, which have multiplied 2 times, but the interest costs have eaten into the profitability, which remains stable.

This has led to a fall in the RoE which stood at 16.4% in the financial year 2023.

The stock is trading at a P/BV of 9.9x, a 17% premium to its 5-year P/BV of 8.4x.

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

#7 NHPC

Seventh on our list is NHPC.

NHPC is India's premier hydroelectric generation firm, supplying bulk power to utilities across eastern, northern, and north-eastern regions through long-term PPAs. The company boasts a total capacity of 7,000 MW. As a critical provider of hydropower, NHPC fills 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.

NHPC has a massive capex outlay for doubling the installed 7,000 MW capacity by fiscal 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 1.58x, a 43% premium to its 5-year P/BV of 1.1x.

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

#8 JSW Energy

Eight on our list is JSW Energy.

JSW Energy, the holding company for the JSW group's power business, primarily generates power from its power assets located in Karnataka, Maharashtra, Nandyal and Salboni.

The company will boast a 9.8 GW installed capacity by fiscal 2024, 39% of which is thermal followed by wind (37%), hydro (17%) and solar (7%). It enjoys long-term PPA tie-up, rendering high cash flow visibility.

Recently, the company approved the re-organisation of the company's green (renewable) and grey (thermal) businesses.

As a result of this re-organisation, all present and future renewable energy operations will be housed under JSW Energy Neo, a wholly owned subsidiary of the firm.

The new company will drive growth plans in renewable energy across generation, energy storage, and green hydrogen.

The move will aid the firm in building and streamlining its renewable portfolio, as well as establishing an effective holding structure for raising funds and generating value.

JSW Energy Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 11.60% -10.00% -16.40% 22.00% 24.40%
Operating Profit Margin (%) 35.30% 39.20% 45.40% 50.70% 36.90%
Net Profit Margin (%) 7.50% 13.10% 11.90% 21.30% 14.30%
Return on Capital Employed(%) 9.20% 9.90% 9.00% 12.30% 8.00%
Return on Equity (%) 6.00% 9.20% 6.30% 10.90% 8.20%
Data Source: Ace Equity

Between 2019-2023, the sales and net profits have registered a CAGR of 5% and 77%, respectively. The returns have also been rangebound with the RoE and RoCE averaging at 9.7% and 8.1% over a 5 year period.

Moreover, the company has laid out an expansive growth plan. It aims to spend over Rs 1 tn to reach 20 GW of power generation capacity by 2030, with about 85% of this capacity via renewable energy.

The stock is trading at a P/BV of 4.3x, a 95% premium to its 5-year P/BV of 2.2x.

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

#9 SJVN

Ninth on our list is SJVN.

SJVN is in the business of power generation and engineering consultancy.

It is jointly held by the government of India and the government of Himachal Pradesh.

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

The hydro major enjoys a generation capacity of 2,091 MW, with 1,912 MW (or 91.4%) being hydroelectric power and PSP.

Solar and wind power are smaller segments, with 81.9 MW or 3.9% share and 97.6 MW or 4.7% share, respectively. In addition to this, SJVN also operates an 86 km-long power transmission line.

Last year, SJVN, which had traditionally focused exclusively on hydropower, established a subsidiary known as SJVN Green Energy to expand its presence in solar and wind energy, ensuring a stable supply and meeting the growing demand.

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 strategically aspiring 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 4.1x, a 400% premium to its 5-year P/BV of 0.9x.

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

#10 Torrent Power

Last on our list is Torrent Power.

Torrent Power, one of the largest private sector players in India, is an integrated power utility. The company's interests span power generation, transmission, distribution, and the manufacturing and supply of power cables.

It boasts a generation capacity of 3,721 MW with a mix of coal-based, gas-based, and renewable power plants that use efficient technologies.

The company also has under-construction wind power plants aggregating to 1,111 MW.

In the March 2020 quarter, the company took an exceptional write-off to the extent of Rs 10 bn on account of its impairment assessment of the 1,200 MW DGEN mega power project located at Dahej in Gujarat. This resulted in a net loss in the March 2020 quarter.

Torrent Power Financial Snapshot (2019-2023)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 13.50% 3.70% -11.00% 18.40% 79.00%
Operating Profit Margin (%) 25.80% 27.40% 29.60% 26.80% 20.00%
Net Profit Margin (%) 6.90% 8.60% 10.60% 3.20% 8.40%
Return on Capital Employed (%) 12.20% 7.80% 12.90% 6.40% 19.00%
Return on Equity (%) 10.90% 13.10% 13.40% 4.60% 20.70%
Data Source: Ace Equity

Between 2019-2023, the business has grown at a CAGR of 17.3% and 17.9%. The RoE and RoCE has also improved up from 12.2% and 10.9% in fiscal 2019 to 19.9% and 20.7% in 2023.

Over the next three to five years, Torrent Power plans to achieve a 5 GW renewable energy portfolio through inorganic acquisitions and greenfield projects with a keen focus on distribution, renewables and transmission. The company has been allocated land in Gujarat, where it plans to set up 3 GW of renewable projects encompassing both solar and wind energy.

The anticipated total capital expenditure for ongoing renewable projects is estimated at around Rs 50 bn. Out of this sum, Rs 8 bn to Rs 10 bn have already been deployed, leaving the majority of the remaining capex to be invested within the upcoming two years.

The stock is trading at a P/BV of 4.7x, a 220% premium to its 5-year P/BV of 2.1x.

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

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..

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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