The power sector is set to record robust growth in the coming years. Extreme summer temperatures and cold waves during winters have increased the demand for domestic power consumption across the country and globally. Government officials now project electricity demand to reach 384 gigawatts in the 12 months leading up to March 2032. This represents a 5% increase from the estimate released in May. Improved economic activities and a rapidly changing economic scenario have further paved the way for power stocks in India to flourish. So, what are the best power stocks in India? Let’s explore today.
Trends in The Growth of Electricity Demand in the Power Sector
According to the International Energy Agency (IEA), electricity demand in India rose by 7 per cent in 2023 and is expected to grow at an average rate of 6 per cent annually through 2026 due to higher economic activity. The IEA reported last month, “Over the next three years, India will add electricity demand roughly equivalent to the current consumption of the UK.” (Business Standard)
In 2023, peak demand reached 243 gigawatts, surpassing the power ministry’s forecast of 229 gigawatts. In response to this surge, India announced in December that it plans to add nearly 88 gigawatts of new thermal power capacity by early 2032. This expansion, primarily in coal-fired plants, represents an increase of about two-thirds from previous plans.
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Sectoral Trend – Best Power Stocks in India
India is the third-largest producer and consumer of electricity globally, with an installed power capacity of 442.85 GW as of April 30, 2024. The growing population and increasing electrification are driving demand. (According to the Indian Brand Equity Foundation)
Electricity Generation Targets– For 2023-24, India aims to generate 1,750 billion units (BU), a 7.2% increase from 2022-23’s 1,624.158 BU. Power consumption rose 9.5% in FY23, reaching 1,503.65 BU.
Investment in Energy Projects– The National Infrastructure Pipeline for 2019-25 shows energy sector projects will account for 24% of the ₹111 lakh crore (US$1.4 trillion) capital expenditure. Initiatives like DDUGJY and IPDS aim to enhance electrification.
Global Recognition– Indian energy firms are gaining global recognition. In the S&P Global Platts Top 250 Global Energy Rankings 2022, Oil and Natural Gas Corp. Ltd. ranked 14th.
Focus on Renewable Energy– India invested US$77.7 billion in renewable energy from 2015 to 2022, ranking fourth globally. FDI in the power sector reached US$18.17 billion between April 2000 and December 2023, accounting for 2.73% of total FDI.
Increased Budget Allocation– The 2024 Budget allocated 50% more funds for power sector initiatives, focusing on green hydrogen, solar power, and green-energy corridors.
Renewable Energy Goals– To meet the 500 GW renewable energy target, the Ministry of Power plans to replace coal with renewable generation in 81 thermal units by 2026. The CEA estimates India’s power requirements will rise to 817 GW by 2030.
Future Investments– India plans to establish 500 GW of renewable energy by 2030. The power generation sector will need ₹33 lakh crore (US$400 billion) and 3.78 million skilled professionals by 2032, according to the National Electricity Plan 2022-32. (Source of Information- IBEF)
Best Power Stocks in India
Best Power Stocks In India are Coal India Ltd, NTPC Ltd, Power Grid Corporation of India Ltd, Adani Power Ltd, Tata Power Company Ltd, JSW Energy Ltd, CESC Ltd, NLC India Ltd, Jaiprakash Power Ventures Ltd, Gujarat Industries Power Co Ltd, PTC India Ltd, and Torrent Power Ltd.
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Let’s Explore Some Of The Best Power Stocks in India
NTPC
Let’s dive into NTPC, one of the best power stocks in India. NTPC is a large-cap company with a market capitalization of ₹3,65,470 crores. The company shows decent profitability with a Return on Capital Employed (ROCE) of 10.4% and a Return on Equity (ROE) of 13.5%.
NTPC’s Price-to-earnings (PE) Ratio stands at 17.57, which is lower than the sector PE ratio of 31.13. This suggests that NTPC might be undervalued compared to its peers. The company consistently grows its earnings per share (EPS), with the current trailing twelve months (TTM) EPS at ₹21.5 per share.
However, NTPC has a higher Debt to Equity Ratio of 1.46, indicating that its assets are largely financed through debt. On a positive note, the company pays a current-year dividend of ₹7.25, offering a yield of 2.05%.
The promoter shareholding remained steady in the most recent quarter at 51.1%. NTPC’s annual revenue increased by 1.79% over the last year, reaching ₹181,165.86 crores. Despite this growth, the stock price rose by 96.87% but still underperformed its sector by 25.04% over the past year.
3-Year Performance:
-Profit Growth Compounded: 9%
-CAGR for Stock Price Growth: 47%
-Growth in Compound Sales: 17%
-Equity Return: 13%
Twelve-Month Trailing Period (TTM) Performance:
-Profit Growth Compounded: 22%
-CAGR for Stock Price: 98%
-Growth in Compound Sales: 1%
-Equity Return: 14%
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In summary, NTPC is a solid player in the power sector with consistent earnings growth, a steady dividend, and a significant market presence, though its high debt level is worth noting.
Adani Power Ltd
Let’s dive into Adani Power, the largest private thermal power producer in India. The company is a large-cap with a market capitalization of ₹2,78,046 crores. It boasts robust profitability ratios, with a Return on Capital Employed (ROCE) of 32.2% and a Return on Equity (ROE) of 57.1%.
Adani Power’s Price-to-earnings (PE) Ratio stands at 13.35, which is lower than the sector PE ratio of 31.13. This indicates that Adani Power might be undervalued compared to its peers. The company has outstanding and growing earnings per share (EPS), with the current trailing twelve months (TTM) EPS at ₹54.0 per share.
The company has a healthy debt-to-equity ratio of 0.96, indicating that its assets are mainly financed through equity rather than debt. However, Adani Power did not declare any dividend this year, resulting in a yield of 0%.
The promoter shareholding remained steady in the most recent quarter at 71.75%. Adani Power’s annual revenue increased significantly by 40.06% over the last year, reaching ₹60,281.48 crores. The stock price rose by 197.75%, outperforming its sector by 75.84% over the past year.
3-Year Performance:
-Profit Growth Compounded: 153%
-CAGR for Stock Price Growth: 88%
-Growth in Compound Sales: 24%
-Equity Return: 48%
Twelve-Month Trailing Period (TTM) Performance:
-Profit Growth Compounded: 94%
-CAGR for Stock Price: 199%
-Growth in Compound Sales: 30%
-Equity Return: 57%
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In summary, Adani Power is a leading player in the power sector with impressive profitability, a strong market presence, and significant revenue growth, though it currently offers no dividend yield.
JSW Energy Ltd
Let’s take a closer look at JSW Energy Ltd, a major player in India’s power sector. JSW Energy is a large-cap company with a market capitalization of ₹1,24,616 crores. The company has decent profitability ratios, with a Return on Capital Employed (ROCE) of 8.59% and a Return on Equity (ROE) of 8.40%.
The Price-to-earnings (PE) Ratio for JSW Energy is 72.34, which is higher than the sector PE ratio of 31.13. This suggests that JSW Energy may be overvalued compared to its peers. However, the company’s earnings per share (EPS) are positive and growing, with the trailing twelve months (TTM) EPS at ₹10.5 per share.
JSW Energy has a debt-to-equity ratio of 1.5, indicating that its assets are primarily financed through debt. Despite this, the company declared a current-year dividend of ₹2, providing a yield of 0.28%.
Promoter shareholding in JSW Energy decreased by 4.06% in the most recent quarter, bringing it to 69.32%. The stock price rose by 134.12%, outperforming its sector by 12.21% over the past year.
3-Year Performance:
-Profit Growth Compounded: 29%
-CAGR for Stock Price Growth: 61%
-Growth in Compound Sales: 18%
-Equity Return: 9%
Twelve-Month Trailing Period (TTM) Performance:
-Profit Growth Compounded: 27%
-CAGR for Stock Price: 128%
-Growth in Compound Sales: 11%
-Equity Return: 8%
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In summary, JSW Energy is a significant player in the power sector with growing EPS and substantial market capitalization. However, its high PE ratio and reliance on debt are notable considerations.
Jaiprakash Power Ventures Ltd
Let’s delve into Jaiprakash Power Ventures Ltd, a mid-cap company in the power sector. Jaiprakash Power Ventures has a market capitalization of ₹12,809 crores. The company demonstrates decent profitability with a Return on Capital Employed (ROCE) of 14.0% and a Return on Equity (ROE) of 12.8%.
The Price-to-earnings (PE) Ratio for Jaiprakash Power Ventures is 12.53, which is lower than the sector PE ratio of 31.13. This suggests that the company might be undervalued compared to its peers. The earnings per share (EPS) is positive and growing, indicating good health. The trailing twelve months (TTM) EPS stands at ₹1.49 per share, which is low but consistently growing.
The company maintains a healthy debt-to-equity ratio of 0.37, implying that its assets are primarily financed through equity. However, Jaiprakash Power Ventures did not declare any dividend this year, resulting in a yield of 0%.
Promoter shareholding remained steady in the most recent quarter at 24%. The company’s annual revenue increased by 20.75% over the last year, reaching ₹7,151.29 crores. The stock price rose by 206.39%, significantly outperforming its sector by 84.48% over the past year.
3-Year Performance:
-Profit Growth Compounded: 98%
-CAGR for Stock Price Growth: 41%
-Growth in Compound Sales: 27%
-Equity Return: 5%
Twelve-Month Trailing Period (TTM) Performance:
-Profit Growth Compounded: 2267%
-CAGR for Stock Price: 209%
-Growth in Compound Sales: 17%
-Equity Return: 13%
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In summary, Jaiprakash Power Ventures is a growing mid-cap company with solid profitability, healthy debt levels, and impressive stock performance. Despite offering no dividend yield, it is one of the best power stocks in India
Torrent Power Ltd
Let’s examine Torrent Power Ltd, another top contender among the best power stocks in India. Torrent Power is a large-cap company with a market capitalization of ₹73,539 crores. As a leading integrated power utility company in India, it boasts sound profitability ratios, with a Return on Capital Employed (ROCE) of 14.8% and a Return on Equity (ROE) of 15.2%.
The Price-to-earnings (PE) Ratio for Torrent Power is 40.11, higher than the sector PE ratio of 31.13, suggesting it may be overvalued compared to its peers. However, the earnings per share (EPS) is positive and growing, with the trailing twelve months (TTM) EPS at ₹38.1 per share.
Torrent Power maintains a healthy debt-to-equity ratio of 0.96, indicating that its assets are primarily financed through equity. The company declared a current-year dividend of ₹16, providing a yield of 1.04%.
Promoter shareholding remained steady in the most recent quarter at 53.57%. Torrent Power’s annual revenue increased by 5.57% over the last year, reaching ₹27,527.53 crores. The stock price rose by 147.17%, outperforming its sector by 25.26% over the past year.
3-Year Performance:
-Profit Growth Compounded: 11%
-CAGR for Stock Price Growth: 48%
-Growth in Compound Sales: 31%
-Equity Return: 15%
Twelve-Month Trailing Period (TTM) Performance:
-Profit Growth Compounded: -14%
-CAGR for Stock Price: 144%
-Growth in Compound Sales: 6%
-Equity Return: 15%
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Torrent Power is a robust large-cap company with strong profitability, growing EPS, and healthy debt levels. Despite a high PE ratio, its consistent dividend and significant stock performance make it a notable player in the power sector.
Bottom Line
India’s power consumption is growing rapidly due to urbanization and industrialization. The government is supporting this growth with favourable policies and initiatives. The future of the power sector in India looks bright. Companies like NTPC, Adani Power, JSW Energy, Jaiprakash Power Ventures, and Torrent Power are positioned to benefit from these trends.
That’s all for today’s post. Hope you get some valuable insights from here.
Happy reading!
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a while. The post does not consist of any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
