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  • Nov 22, 2023 - Top 5 Green Hydrogen Stocks to Watch Out in Nifty's Run to 40,000

Top 5 Green Hydrogen Stocks to Watch Out in Nifty's Run to 40,000

Nov 22, 2023

Top 5 Green Hydrogen Stocks to Watch Out in Nifty's Run to 40,000

The Indian stock market is booming, with the Nifty 50 index rising from around 17,000 in early 2023 to over 19,783 in November 2023, a gain of over 20%. This growth is likely to continue, with experts projecting the Nifty 50 to reach 40,000 levels.

Ahead of the general elections slated in 2024, experts are of the view that Nifty could continue its pre-election rally, going by the historical data.

One of the key sectors driving India's economic growth is the burgeoning renewable energy sector, where green hydrogen is emerging as the designated 'fuel of the future.'

The country is quickly becoming a world leader in the transition to clean energy, with the government setting massive 2030 targets for green hydrogen capacity.

This expansion presents a compelling opportunity for investors seeking to capitalise on India's green hydrogen revolution.

The Nifty 50 index, with its comprehensive selection of diversified, well-performing and liquid investment options, offers a promising avenue for exploration.

Keeping this in mind, we have identified five Nifty 50 stocks that are poised to benefit from this surge in green hydrogen technology.

#1 Larsen & Toubro (L&T)

At the top of our list is the country's engineering major, Larsen and Toubro.

L&T is spearheading the green revolution in India by playing a significant role in the green hydrogen sector.

Currently, the company produces 45 kg of green hydrogen daily for its own use. The company is expanding its capacity and has formed a joint venture with IOC and ReNew Power.

Apart from selling green hydrogen, L&T also plans to manufacture and set up the entire infrastructure for the same.

To achieve this goal, the infrastructure conglomerate has tied up with the French company McPhy for technology for electrolyser manufacturing.

This will enable the company to cater to both segments of the green hydrogen ecosystem - electrolyser manufacturing and production of the gas.

The company's power transmission and distribution business is already gearing up to work on the infrastructure set-up for the world's largest green hydrogen plant built by NEOM Green Hydrogen Company.

L&T has allocated a capital outlay of US$ 2.5 bn (Rs 207 bn) in the coming three to four years for all its green energy endeavors.

With a strong business foundation and extensive experience, the company appears well-positioned to capitalise on the expanding sector.

Between 2019-23, the company's sales and net profit have grown at a 5-year compounded annual growth rate (CAGR) of 9% and 8%, respectively.

The returns have been strong, with the Return on Equity (RoE) and Return on Capital Employed (RoCE) averaging over 12% and 13.3%.

Larsen & Toubro Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 11.76% 8.10% -5.51% 15.05% 15.70%
Operating Profit Margin (%) 18.42% 18.67% 20.00% 17.18% 16.49%
Net Profit Margin (%) 7.15% 6.99% 3.43% 6.57% 6.89%
Return on Capital Employed(%) 13.29% 12.49% 9.97% 11.61% 12.98%
Return on Equity(%) 16.58% 15.84% 6.58% 13.07% 14.78%
Data Source: Ace Equity

L&T has fairly deleveraged its balance sheet in the past five years. The debt-to-equity ratio has fallen from 1.2x in the financial year 2019 to 0.7x in 2023, which can help the company immensely for its next leg of growth.

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

#2 Indian Oil Corporation (IOC)

Next on our list is the state-owned oil and gas major, Indian Oil Corporation (IOC).

In a strategic shift towards sustainability, IOC is establishing a new subsidiary dedicated to exploring opportunities in low-carbon, clean energy.

This focus on clean energy solutions is particularly important for the refinery sector, which accounts for a significant portion of global carbon emissions.

Recognising this responsibility, IOC, one of the largest producers of hydrogen using conventional methods, aims to convert 50% of its hydrogen production to greener processes by 2030.

To achieve this, the company is constructing green hydrogen plants at its existing refineries and establishing a green hydrogen manufacturing unit.

Moreover, Its partnerships with ReNew Power and L&T will help enhance its green hydrogen production capabilities.

In September 2023, the company unveiled the nation's first green hydrogen-powered bus that emits just water. Starting with a fleet of two buses in the NCR region, it aims to ply a total of 15 buses by the end of 2023.

Through these initiatives, IOC aims to position itself as a key player in India's green hydrogen revolution.

IOC Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 25.23% -7.85% -23.50% 57.93% 42.73%
Operating Profit Margin (%) 6.15% 3.41% 8.47% 6.78% 3.60%
Net Profit Margin (%) 2.80% -0.33% 4.10% 3.43% 1.21%
Return on Capital Employed (%) 15.87% -0.25% 15.78% 16.63% 8.43%
Return on Equity(%) 15.26% -1.81% 21.00% 20.97% 8.57%
Data Source: Ace Equity

IOC is a leader in its field which is well-reflected in its incredible performance between 2019-23. The sales have grown at a CAGR of 15%. The returns have been strong, with the RoE and RoCE averaging at over 11.3% and 12.8%, respectively.

This has strengthened the oil major's balance sheet, allowing to fund the expansion plans with a healthy debt-to-equity of 0.4x and interest coverage of 7.1x.

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

#3 Adani Enterprises

Third on the list is the airport to renewable energy conglomerate, Adani Enterprises.

Building upon its success in power, oil and gas, infrastructure, and airports, Adani Enterprises is now poised to make significant inroads into the green hydrogen sector.

The company is committing to over US$ 50 bn over the next 10 years on building the world's largest green hydrogen ecosystem in India.

The massive investment will help Adani become a green hydrogen giant, globally and put India on the map as the cheapest producer of hydrogen.

The company will kick off by setting up a US$5 bn integrated facility, which will include manufacturing plants for wind turbines and solar modules and renewable generation capacity.

Earlier, the entire green hydrogen project was a tie up with TotalEnegies, a French energy company.

However, since February 2023, after the Hindenburg Research, the foreign company has put its participation on hold.

Adani Enterprises Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 12.14% 7.66% -8.61% 75.03% 95.94%
Operating Profit Margin (%) 6.29% 6.84% 8.24% 6.81% 7.32%
Net Profit Margin (%) 0.55% 1.84% 1.89% 0.68% 1.61%
Return on Capital Employed(%) 6.79% 9.73% 7.88% 7.21% 10.72%
Return on Equity(%) 1.50% 5.03% 4.38% 2.45% 8.08%
Data Source: Ace Equity

Between 2019-2023, the company's revenue and net profit has grown at a CAGR of 30% and 46%, respectively.

Adani Enterprises aims to invest about US$ 300 m in the hydrogen business in financial year 2024, increasing it rapidly from next year.

Apart from this, the company plans to spend a total of US$ 3.5 bn in capital investment during the year.

There is a good chance the company will fund its foray into green hydrogen through debt, given that it is going solo on the project.

However, this approach is clouded by doubts regarding the company's ability to secure additional debt given its tarnished reputation, which may have far-reaching consequences.

Adani Enterprises' financial position appears shaky, with a staggering debt-to-equity ratio of 9.2x in financial year 2023 and a weak interest coverage ratio of 1.2x.

The total debt has jumped from Rs 27 bn in financial year 2023 to Rs 32 bn in September 2023.

Should the company raise more debt, it may severely deteriorate the quality of the business, eventually raising concerns over the business' profitability.

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

#4 Reliance Industries

Fourth on the list is Reliance.

Reliance Industries has embarked on an ambitious green energy journey, driven by Mukesh Ambani's vision to invest Rs 750 bn in renewable infrastructure.

In collaboration with Danish company Stiesdal A/S, Reliance has established a manufacturing unit dedicated to producing modular electrolysers for green hydrogen production.

While green hydrogen production currently carries a hefty price tag of US$ 3.6-5.8/kg, Ambani aims to achieve a breakthrough by producing hydrogen at an astonishingly low cost of "under US$ 1 per 1 kg within a decade."

The company is laying down infrastructure for disbursement of green hydrogen from its proposed plant in Gujarat as it prepares to begin production of the fuel by 2025.

With the construction of an electrolyser manufacturing facility, Reliance will be able to produce green hydrogen on a large scale at its Jamnagar site. This will allow it to gradually reduce its reliance on external hydrogen sources and meet its own hydrogen needs.

Additionally, the green hydrogen produced at Jamnagar will be used to manufacture green ammonia and green methanol for both domestic and international markets.

Furthermore, oil-to-telecom conglomerate aims to become the world's largest blue hydrogen producer, leveraging petroleum coke as a feedstock.

Recent developments also hint at sizable investments in Australia, potentially involving a green hydrogen/ammonia plant.

To further solidify its commitment to green energy, Reliance showcased a hydrogen-powered truck in 2023, signalling a clear shift towards a sustainable future.

Reliance Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 25.23% -7.85% -23.50% 57.93% 42.73%
Operating Profit Margin (%) 6.15% 3.41% 8.47% 6.78% 3.60%
Net Profit Margin (%) 2.80% -0.33% 4.10% 3.43% 1.21%
Return on Capital Employed(%) 15.87% -0.25% 15.78% 16.63% 8.43%
Return on Equity (%) 15.26% -1.81% 21.00% 20.97% 8.57%
Data Source: Ace Equity

The company enjoys a healthy debt-to-equity of 0.3x which enables it to fund its growth easily.

The company's sales have been growing smoothly. However, the history of profits has been patchy. Between 2019-23, the sales have grown at a 5-year CAGR of 15%. The returns have been admirable, reporting a 5-year average RoE and RoCE of 12.8% and 11.3%, respectively.

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

#5 NTPC

Last on our list is National Thermal Power Corporation (NTPC).

NTPC, India's leading power generation company, is establishing a strong foothold in the green hydrogen sector, driving the transition towards a cleaner energy future.

The company is close to commissioning India's first green hydrogen fuelling station in Leh and has several initiatives underway.

It also setting up India's first green hydrogen energy storage at its Simhadri facility. The government-owned entity is also running a hydrogen pilot project in its Vindhyanchal unit and setting up India's biggest 5MW electrolyser.

Apart from these pilot projects, NTPC has been exploring the green hydrogen space with some experiments. It is working on green hydrogen derivatives, green ammonia & green methanol, with HPCL Mittal Energy.

The company has made some headway in this by commissioning its first green hydrogen blending with piped natural gas project commissioned in Gujarat.

It is also signing a memorandum of understanding (MoU) with the Indian Army for setting up green hydrogen projects at army establishments.

Additionally, it also collaborates with ONGC and Oil India to explore the areas of renewable energy, green hydrogen & its derivatives.

This exhaustive list of initiatives highlights the power giant's commitment to the development of green hydrogen and its role in decarbonising the energy sector.

NTPC Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 10.07% 14.35% 0.50% 16.25% 29.23%
Operating Profit Margin (%) 24.79% 35.98% 36.15% 33.32% 27.70%
Net Profit Margin (%) 13.99% 10.87% 13.42% 12.78% 9.72%
Return on Capital Employed(%) 6.51% 9.77% 8.26% 9.24% 9.77%
Return on Equity (%) 13.06% 10.41% 12.24% 12.99% 12.13%
Data Source: Ace Equity

The business has been growing well. Between 2019-23, the company's sales and net profit grew at a 5-year CAGR of 14% and 10%, respectively.

Considering the government's cap on returns, the 5-year average RoCE and RoE stood at 8.7% and 12%, respectively.

The company aims to finance all its renewable energy projects with a judicious mix of debt and equity. As of March 2023, the debt-to-equity stands at 1.3 times with an interest coverage ratio of 3.2 times.

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

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

Safe Stocks to Ride India's Lithium Megatrend

Lithium is the new oil. It is the key component of electric batteries.

There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.

So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.

If you're an investor, then you simply cannot ignore this opportunity.

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