NTPC, Power Grid charged up with demand picking up, decent valuations

Rebound in power demand, reducing concerns over receivables, and decent valuations among multiple headwinds

Shares of power utilities, such as Power Grid and NTPC, have rebounded 18-28 per cent from their March lows. The improving power sector scenario suggests there is more steam left in these stocks.

While the easing of the nationwide lockdown bodes well for power demand, the government's stimulus package and the proposed power reforms augur well for recovery of bills due from electricity distribution companies (discoms). The two companies have significant exposure to regulated businesses (over 90 per cent of revenue). NTPC and Power Grid, both earn a fixed return (15.5 per cent) on the capital (equity) employed in these