Power stocks fire up; Adani, NTPC, JSW, ABB, Siemens hit new highs

The S&P BSE Power power index hit a new high of 7,112.42 in the intraday trade. Thus far in the calendar year, the index has rallied 22 per cent

Shares of power generation and its related companies were in focus on Thursday, as they rallied up to 5 per cent on the BSE in Thursday's intra-day trade on strong demand.

At 11:03 am, the S&P BSE Power index, the top gainer among sectoral indices, was up 1.1 per cent as compared to 0.26 per cent decline in the S&P BSE Sensex.

The power index also hit a new high of 7,112.42 in the intraday trade. Thus far in the calendar year, the index has rallied 22 per cent as compared to a 2 per cent rise in the benchmark index. In the past one year, the power index has nearly doubled, zooming 98 per cent, as against a 23 per cent rally in the S&P BSE Sensex.

Adani Power (zoomed 236 per cent), Torrent Power (185 per cent), JSW Energy (136 per cent), NTPC (105 per cent) and Tata Power Company (113 per cent) turned multibaggers during the period. ABB India (95 per cent), and Siemens (69 per cent), meanwhile, rallied over 50 per cent during the period. Except, Tata Power, the remaining stocks are trading at their respective record high levels.

Power demand is closely associated with a country's gross domestic product (GDP) growth. A booming economy automatically leads to a surge in power demand. India is the fastest-growing economy in the world, with an average GDP growth of 5.5 per cent over the past decade. In the December quarter, it clocked a solid 8.4 per cent growth in GDP.

The trickle-down effect of Aatmanirbhar Bharat relief package, government spending on infrastructure through the National Infrastructure Pipeline, commissioning of the dedicated freight corridors, expansion of the services industry, rapid urbanisation, and increased farm income from agriculture-related reforms are key macroeconomic factors fostering power demand.

India's electricity requirement has risen at a CAGR of approximately 4.5 per cent between Fiscals 2018 and 2023, while power availability rose at approximately 4.6 per cent CAGR on the back of strong capacity additions, both in the generation and transmission segments.

CRISIL expects energy demand to register 5-7 per cent CAGR over Fiscals 2024-2029, significantly higher than the approximately 3.8 per cent CAGR over the past five years. It also expects the all-India deficit to decline from 0.5 per cent in Fiscal 2023 to 0.3 per cent by Fiscal 2029 on account of increasing renewable capacity additions, transmission line augmentation, and improvement in distribution infrastructure.

CRISIL projects investments of Rs 28.5-29 trillion in the power sector in the next six years. The share of investments in generation is expected to increase and that of distribution to decrease over the next six years compared to Fiscals 2018-2023.

The share of the private sector in the overall power sector investments during Fiscals 2024-2029 is expected to increase to 62 per cent from approximately 34 per cent over the past six years. This will be largely driven by renewable capacity additions, bulk of which are funded by private investments.

On the bourses, among individual stocks, Adani Power hit a new high of Rs 647, up 5 per cent on the BSE in the intraday trade today. In the past five trading days, the stock of the Adani Group company has surged 25 per cent.

Adani Power is now the largest independent power producer in the country, with an operational capacity of 15.2GW, of which 81 per cent is tied up on long-term/medium-term power purchase agreements (PPAs).

The company had delivered stellar financial performance during the third quarter of the financial year 2023-24 (Q3FY24), with higher sales volumes and the benefit of lower imported fuel prices.

Adani Power plans to add close to 6 gigawatts (Gw) of new power assets in the next five years, according to an investor presentation by the company. That is clearly meant to ride on India’s burgeoning power demand.

Adani Power's consolidated operating Ebitda will likely remain healthy over Rs 12,000 crore per annum for fiscals 2024 and 2025. However, any moderation in power demand leading to lower-than-expected volume and profitability for Adani Power will remain monitorable, according to analysts.

Shares of JSW Energy, too, hit a new high of Rs 604.15, up 4 per cent in the intraday trade, and has rallied 16 per cent in the past three trading days. On Tuesday, April 2, the company's board approved to raise Rs 5,000 crore through qualified institutional placement (QIP) of equity shares with floor price of Rs 510.09 per share.

The company intends to utilise the net proceeds towards the repayment / pre-payment, in part or in full, of certain outstanding borrowings availed by the Company; Investment in wholly owned Subsidiary, JSW Neo Energy Limited; and general corporate purpose.

Meanwhile, last month, the final tariff norms released by the Central Electricity Regulatory Commission (CERC) for FY25-FY29 have retained most of the norms set in the draft policy released earlier. It ensures the stability of existing power assets by keeping their regulated returns unchanged.

The tariff guidelines maintain 15.5 per cent ROE for thermal generation stations over FY25-FY29, in line with current norms (FY19-FY24). CERC has increased the attractiveness of hydro-based power by hiking ROE by 50bps to 17 per cent for storage-based hydro plants as well as pumped storage hydro plants (PSHP).

Analysts at BOB Capital Markets believe this is aimed at storage capacity as PSHP is a viable solution to make renewable power available round the clock (RTC). On the transmission side, CERC has marginally reduced regulated ROE by 50bps to 15 per cent.

The proposals are incrementally positive for NTPC as it plans to add ~8GW of PSHP over the next 5-7 years due to the better ROE profile of PSHPs, the brokerage firm said.