Power utilities: Valuations down on likely dim show in first half of FY26

The power sector had a modest FY25 and may see a muted H1FY26. There was 3 per cent year-on-year (Y-o-Y) growth in power demand in FY25, over a high base (7.8 per cent Y-o-Y growth in FY24).

 

Unseasonal rains in May 2025 will impact demand in H1FY26.

 

There was a capacity addition of 33 Gw of installations in FY25, led by the renewable energy (RE) sector (29 Gw).

 

However, earnings per share (EPS) growth missed estimates due to slow execution in commissioning new capacities and lower merchant tariffs.

 

About 34 Gw of under-construction coal thermal is to be commissioned in the next 6-7 years and the pace of RE capacity addition will also accelerate. Capacity additions could be 40 Gw-plus in FY26 and FY27 led by RE.

 

FY26 has started soft with flat power demand in April and May on a Y-o-Y basis, due to rains.

 

But given the strong linkage with gross domestic product (GDP), we may expect medium-term demand growth at 5.5 per cent or better.

 

Slow capacity addition with guidances missed, coupled with weak merchant tariffs (down 16 per cent Y-o-Y), weighed down earnings in FY25. Some of the capacities will kick in during FY26.

 

NTPC Green’s acquisition of Ayana (2.1 Gw) and JSW Energy’s KSK Mahanadi buy (1.8 Gw) helped meet capacity addition targets. Favourable regulatory orders were supported by Tata Power and NTPC. Transmission is being cited as a concern with commissioning of transmission capacity behind schedule. 

 

Among public sector undertakings (PSUs), NTPC added 4 Gw capacity (2 Gw through acquisition), against 6 Gw of guidance.

 

Consolidated profit after tax (PAT) rose 17 per cent Y-o-Y to ₹24,000 crore, aided by ₹3,700 crore (up 270 per cent) of regulatory income.

 

Adjusted PAT (standalone) was ₹18,000 crore, up 10 per cent, on the back of increase in regulated equity to ₹90,900 crore (up 4 per cent).

 

NHPC was unable to commission Parbati III (800 Mw) or any units of Subansiri (Lower) in FY25 against a guidance of 1.5 Gw capacity addition. NHPC commissioned Parbati III in April 2025, which will boost earnings growth for FY26. For FY25, NHPC’s PAT was ₹3,000 crore (down 17 per cent Y-o-Y).

 

Among private players, JSW Energy reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of ₹5,220 crore (down 3 per cent), and this was impacted by lower short-term tariffs. The PAT of ₹1,950 crore (up 13 per cent) was helped by higher other income (treasury gains and late payment surcharge).

 

JSW Energy added a capacity of 3.6 Gw in FY25, including acquisition of KSK Mahanadi (1.8 GW).

 

Tata Power’s consolidated PAT of ₹4,090 crore (up 20 per cent) in FY25 saw better contribution from Odisha discoms, the module and cell business running at full capacity, favourable tariff order in Delhi distribution (worth ₹300 crore) and regulatory benefits at Mundra (₹300 crore). 

 

CESC reported consolidated FY25 PAT of ₹1,370 crore (flat), as growth in standalone was offset by losses in Malegaon distribution entity.

 

ACME Solar saw strong earnings growth in Q4FY25 owing to capacity additions, but overall FY25 earnings growth was impacted by sale of assets in FY24.

 

Power Grid Corporation reported PAT of ₹15,500 crore (down 0.3 per cent) due to a miss on capitalisation (₹9,000 crore against ₹18,000 crore guidance)

 

Preparedness for the summer is good, with strong coal production and high inventory. In April 2025, the RE sector added capacity of 3.3Gw (69 per cent solar, wind 31 per cent).

 

The power ministry has also invoked Section 11 of the Electricity Act, 2003, to keep gas plants operational.

 

The real-time market (RTM) price averaged ₹3.6 per unit in the first 25 days of May, reflecting a 24 per cent drop (Y-o-Y).

 

Valuations have corrected with utilities seeing de-rating since February.

 

Suzlon Energy could be a key performer, given the renewables momentum.

 

JSW Energy may see the benefit of full contribution of new capacity. ACME Solar is another likely growth stock in the RE space.