For long, , Coal India and stocks have been very attractive on the valuation front. But the way they have got rerated this particular month, what kind of conversations are you having with your clients regarding power stocks now?
Power sector was undervalued for quite a long time despite strong fundamentals and the multiples were at a historically low. Even though the power index has gone up to an almost 10-year high, in terms of absolute numbers, or in terms of valuation multiples, it is still at a lower than historical valuation. Whatever is happening is because of significant growth in demand in the last three-four months — around 12% to 14%. That is impacting coal based generation to show better PLF and will lead to higher incentives.
Also these companies are now going through a renewable transition. They have announced a significant capacity addition plan by 2030 and that is why they are getting rerated. If you look at the policy front, the draft bill in the parliament and also the reform desk, a pro forma linked distribution scheme which was announced said all these are towards the commercial viability of the distribution sector and that is why we find rerating is happening as all the stocks are very undervalued.
Look at the way Tata Power and JSW Energy got rerated. What is your call in these two stocks now and over the next six to eight months, what is your top call in the space?
So if you look at the green energy transition as well as a transmission distribution space transformation, then two companies that stand to benefit out of it are Tata Power and NTPC. Tata Power is already coming out with an IPO for the solar value chain and which will unlock significant value for Tata Power.
Also their operating cash flows have improved, their balance sheet concerning debt equity is now at a comfortable level — 1.6 times. Also they can very much capitalise on privatisation of discoms when that happens. Of the two, Tata Power seems to be far better. NTPC because of better capital allocation ahead can deploy strong operating cash flows to renewable assets.
So, better capital allocation plus a subsidiary for renewable with a target of 60,000 megawatt by 2032 which is 60% of the total portfolio are all helping. So, even on ESG parameters they are better placed.
How much value creation do you in JSW Energy on a three year basis?
The stock has already gone up from Rs 50 to close to Rs 380-390 now. More of these initiatives like battery storage or a green hydrogen or the recently signed MOs with the Maharashtra Government for about Rs 35,000 crore. Recently they have got 805 Mw of wind capacity and they are entering the renewable space. It has already been factored in. The operational assets which are currently in Vijaynagar or Maharashtra or Rajasthan are slightly ahead of fundamentals. Those initiatives are very good but I think the market has already priced that in. At current valuations, we will not consider JSW.
