Power stocks on a roll; PFC, REC, NTPC surge up to 9%, hit new highs

Shares of power and related companies were on a roll with state-owned NTPC, Power Finance Corporation (PFC), and REC surging up to 9 per cent and hitting new highs in Friday's intraday trade, after India's gross domestic product (GDP) grew at 7.6 per cent in the September quarter of 2023-24.

The GDP numbers outperformd expectations by a wide margin as manufacturing and construction activities expanded by double digits.

At 10:41 AM, the S&P BSE Power index, the top gainer among sectoral indices, was up 2.5 per cent, as compared to 0.68 per cent rise in the S&P BSE Sensex. The power index hit a new high of 5,050.79 in intraday trade today.

Among individual stocks, PFC and REC surged 9 per cent each to Rs 366.75 and Rs 380.75, respectively, while NTPC rallied 5 per cent to Rs 274.50.

Adani Power surged 5 per cent to Rs 454.70, followed by JSW Energy (4 per cent at Rs 424.50), NHPC (3 per cent at Rs 56.84), and Tata Power (3 per cent at Rs 278).

India's Chief Economic Advisor (CEA) V Anantha Nageswaran said on Thursday that the government is much more confident of achieving a 6.5 per cent growth in the current financial year (2023-24). CLICK HERE FOR FULL REPORT

The base and peak demand is expected to maintain growth at above long -term trajectory during FY24 driven by higher industrial and commercial activities, digitalisation and electric transportation. Share of thermal power generation is likely to remain strong during FY24 with all-India PLF peaking beyond 64 per cent.

Elevated peak deficits caused by sharp seasonal charges, lag in coal production/transportation, and volatility in coal cost is expected to keep merchant rates firm, which augurs well for plants with untied capacity. The sector is expected to witness FGD capex of around Rs 1 trillion in the medium term where the progress in terms of financial closure and project implementation have been slow.

"While the gencos have remained exposed to the vagaries of payment from the discoms, the receivables have reduced for the first time in last five years. Till the time structural changes are successfully implemented for the discoms, the power generation companies (gencos) are expected to have high working capital requirement," Care Ratings had said in NTPC's rating rationale.

Meanwhile, in an exchange filing, REC said that the company has crossed disbursement of Rs 1 trillion (Rs 100,000 crore) for the first time in a year. In the corresponding period of 8 months of financial year 2022-23 (FY23) the disbursement was Rs 46,075 crore.

Further, in another exchange filing, REC said that its board has approved revision in market borrowing programme of the company under different debt segments with interchangeability amongst various instruments including bonds/debentures, term loans, external commercial borrowings, commercial papers etc. on private/ public placement basis from Rs 1.2 trillion to Rs 1.5 trillion for FY24.

Since April, thus far in FY24, the stock price of REC has zoomed 230 per cent from level of Rs 115.45.

Care Ratings expects REC's strategic importance to the GoI and its role in the development of the power sector to continue as earlier. The ratings on the borrowing programme of REC factor in the ultimate sovereign ownership and economic interest, and hence, there is an expectation of continued strong support from the GoI given its strategic importance. Going forward, the continued sovereign ownership (indirectly through PFC) and support from the GoI in maintaining a comfortable capital structure and asset quality will remain the key rating sensitivities.